Why Do You Invest In Real Estate?
Looks like I am reaching towards the end of the book and this last section is suppose to be about getting started by using different industries and professions as an example. As the title implies, the first one is about real estate. Robert starts off by reminding us his view on how there is no such thing as a risky investment, but rather there are bad investors. His main reason on why he likes to invest in real estate is because it gives him control over his investment as opposed to say mutual funds, which he thinks is bad. Some other reasons on why he likes real estate is because investing in it can provide a lot of tax advantages and while the industry has its ups and downs constantly, it is very unlikely that it will ever go away as people need homes to live in.
He then says that his main secret on why he likes real estate is because the industry is slow in the sense that it doesn’t change rapidly like say being involved with an Internet business. Now the interesting thing was that he mentioned how he isn’t exactly a technology savvy person and yet he still has a web site which makes him millions of dollars. The big kicker was that he said he doesn’t even use an e-mail address. At this day in age with so many devices which obtain e-mail capabilities and how some sites only distribute information online or require a user to have valid e-mail address, I think that is a little over the top.
Afterwards, he goes into depth in trying to describe about Warren Buffet’s term of investing into something that has intrinsic value which he says is the other reason he loves real estate so much. Trying to summarize it here, basically most people approach an investment with a buy low and sell high mentality such as buying something for $50 and then selling it for $100. Instead, one should look at an investment from an intrinsic value point of view.
For example, let’s say I just bought a web site and its operations for one-hundred thousand dollars and I am just hoping that the value of the site will go high enough for me to sell to make money. Instead, before investing I should of looked at the complete picture and invest in it based on all of the benefits that I could get in purchasing that site. Just off the top of my head, if I just bought a news site, some examples would be that I now don’t have to pay money to get the same news elsewhere which saves me money, it is currently staffed with industry veterans that can help make the site even bigger, the site could expand its revenue by introducing new forms of advertising mediums and I can get tax breaks in more ways now. Basically, it is more like treating your investment like a business rather than a typical stock.
In the end, Robert once again talks about his dislike for mutual funds and writes down on how when one invests in a mutual fund, 80% of the return goes to the company and you receive 20% of it. At the same time, you are taking 100% of the risk and capital while the mutual fund company gets a free ride and lives by collecting the fees associated with the investment.
Donald Trump mostly just talks about his passion for real estate in general and how he even loved to build tall objects with building blocks as a child. He pretty much agrees with Robert’s point of view in regards to the real estate industry and how it will never become obsolete as the value of Earth has constantly gone up. He mentioned a point which was very interesting on how the original price of Manhattan was only $24. He also says that it is a very energetic industry which also makes him very passionate about it.
I would say this is the first chapter thus far that made me think a lot and taught me things that I didn’t really think too much before about the real estate industry as it isn’t exactly my forte. I am the complete opposite though when it comes to technology and the Internet as I feel at home with it. I still can’t get over the fact that Robert says he doesn’t even have an e-mail address. I can see for like older folks who live a simple life as there are many who still don’t even have a computer, but this is a guy that runs a business, uses a computer and even has web site……. How is that even possible nowadays? I guess I’ll just have to meet someone like that in real life before I can really believe that.