If you are considering investing in Colorado Springs real estate, or real estate in general, you’ve come to the right place. I’m convinced that real estate investing is the single best method of wealth creation over the long term.
1. Real estate is a stable investment
Anyone who watches the news on a regular basis knows the stock market can be a wild ride. Fluctuations of any individual stock can be dramatic. Daily swings of 20 to 50% and higher are commonplace in the stock market, with individual stock prices regularly dropping to zero.
In his classic book The Intelligent Investor, Warren Buffet’s mentor Benjamin Graham compared the stock market (Mr. Market) to a crazy person that shouts random price quotes with no connection to reality. Are you comfortable putting your financial future in the hands of a crazy person? I’m not.
2. Real estate returns beat the stock market
A team of researchers from the University of California found that real estate edged out the stock market, and all other forms of investment, over the long-term, with less volatility. (Source)
While the details are more nuanced than saying real estate returns are always better than stock returns, real estate should be higher on the investing totem pole. When people think “investing,” they usually think stocks first, bonds second, bitcoin third, and real estate somewhere down the list.
We at Circa Real Estate Group hope to change that. We don’t recommend dumping your stocks and buying real estate, but we do think you should give real estate investing a closer look.
You don’t have to take our word for it, follow the advice of famous stock market investor and hedge fund manager John Paulson:
“If you don’t own a home, buy one. If you own a home, buy another one. If you own two homes, buy a third. And, lend your relatives the money to buy a home.”
3. Real estate is tangible
You can’t live in stocks. Your friends can’t come over to your bond portfolio and your kids can’t play on the back deck of your bitcoin. When you invest in stocks and bonds through an IRA or 401(k), you get a statement each month and that’s about it.
Homes are a tangible asset with intrinsic value. You can see real estate, touch it, smell it, and walk around inside it. Many of our happiest memories are in the homes of a friend or family member. This type of intrinsic, tangible value contributes to the financial stability of real estate.
You can paint a room, mow the lawn, and replace the carpet, all contributing to market value. With stocks, you have no influence over their value. Real estate investing puts you in control.
4. Land is limited
Land is a limited resource, especially in Colorado Springs. While we love living next to the majestic Rocky Mountains, most people don’t want to build a home at 14,000-foot elevation. This creates a land-lock, especially on the west side of town. This natural boundary limits the supply of land and drives up the price of real estate in Colorado Springs.
Real estate investors like to joke that “they aren’t making any more land,” but it’s true. This financial concept is called “scarcity,” and it is a leading driver of real estate prices.
Simply stated, limited supply coupled with high demand improves market value. More people are being born every day. People need a place to live and, “they aren’t making any more land,” which is another way of saying there is limited supply.
The other important element of market demand in Colorado Springs is that we are an attractive place to live. Between the sunny weather, military bases, and tourist attractions like Garden of the Gods and Pikes Peak, people from all over the world are pouring into Colorado Springs. That means, from a supply and demand standpoint, Colorado Springs real estate is a great investment.
5. Real estate can be leveraged
If you need any more convincing that real estate is a good investment, try getting a $300,000 loan to buy stocks, payable over the next 30 years at the lowest market interest rates. Crazy, right? No banker would make that loan. But bankers all over the country will jump at the opportunity to make the same loan on real estate.
Bankers know something many people are still learning; real estate is excellent security for investment. Take a hint from you friendly neighborhood banker, invest in real estate.
Leverage on real estate allows you to control a large asset for a small cash investment. For $40,000, you can control an investment of $200,000. If that investment appreciates 10%, you profit from 10% of the $200,000, not the $40,000 you invested. So for a $40,000 cash investment, 10% price appreciation returns $20,000, which is a cash-on-cash return of 50%.
If you were able to achieve 50% returns in the stock market, you would be on the cover of Forbes. In real estate, that type of cash-on-cash return happens every day. While it won’t get you on the cover of magazines, it can make you a wealthy investor.
6. Real estate can produce cash flow
On that $200,000 investment you purchased with $40,000 cash, you might have a payment of $1,000. If you rent out that property for $1,300, you now have a cash-on-cash return of 9% annually, without considering price appreciation.
What you don’t want to miss in this example, is while you are earning your 9% return and enjoying an extra $300/month, someone else is paying off your mortgage. Each month, a little more equity is being built in your home, and you aren’t paying for it.
7. Cash flow, appreciation, and equity
Letting someone else build equity in your home while you enjoy the benefits of cash flow and price appreciation is what real estate investing is all about.
More benefits to real estate investing
There are many benefits we haven’t discussed, such as tax advantages, the benefits of passive income, or the means of obtaining financial independence through real estate investing. If you would like to find out more about real estate investing in Colorado, please schedule a meeting with a Circa Real Estate Group investor specialist.
Circa Group, LLC, dba Circa Real Estate Group, and its representatives do not render legal, tax, or investment recommendations. Persons should consult with their own professional advisors as to risks and legal, tax, and financial implications and consequences in matters concerning investments. All investments, including real estate, are speculative in nature and involve risk of loss. We encourage our investors to invest carefully.
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