The Dow is up. The Dow is down. Round and round goes the wheel. Where it will stop, nobody knows.
Many retirement investors are waiting for the market to go back up before setting up a Self Directed IRA or 401(k) to invest into real estate. They feel as though they need to recoup some of their “losses” due to market volatility in recent weeks. What’s interesting is that on Sept. 10, 2010 the Dow was at 10,462 and on Sept. 9, 2011 it was at 10,992. That’s a 5% gain.
Where’s the loss? What is the baseline for thinking that says “I have lost money and must wait for the market to come back”? Come back to what level? And, at what cost?
According to recent articles published in the Wall Street Journal, MSN Money and others, market volatility has become the “new normal”. Trying to time a market exit will be quite vexing.
In other words, investors had better keep a bottle of their favorite stomach calming medication handy because the Dow will be like a yoyo for years to come, or at least until the worldwide government debt problem is solved.
What is needed right now is a “dose of reality”.
Most Wall Street cheerleaders like to point to the performance of the stock market vs the housing market by comparing stock market gains to housing appreciation. When compared in that fashion, the stock market is more favorable, but only slightly.
However, when the stock market is compared to investment property (not owner-occupied housing), the reverse is true…by a long shot. Why? Because cash flow from rents is the real key to owning real property vs stocks.
During the real estate bubble, people weren’t investing in cash flow properties, they were speculating and gambling. Real Estate investors never speculate or gamble. They run the numbers and detach themselves emotionally from the property itself. They are entirely focused on “cash flow”. If the property appreciates…it’s icing on the cake.
Let’s look at the numbers for the Dow Jones Industrial Average comparing the close of market Sept 10, 2010 to Sept 9, 2011 assuming a $100,000 investment:
Sept 10, 2010 10,462
Sept 9, 2011 10,992
Gain (5%) = $5,000
Now let’s look at the typical $100,000 residential rental property (no leverage, all cash):
Monthly Net Income $800
Annualized Income $9,600
Gain (9.6%) = $9,600
Reality is that if $100,000 was pulled out of the stock market in Sept 2010 and put into a rental house for $100,000, a retirement account would be ahead by $4,600.
Add in historic appreciation of 4.7% annually, and the gain goes up by $4,700 to a total of $14,300 or a net gain over the stock market investment of $9,300.
Most of our clients are reporting a minimum 10% gain, year over year. Many are reporting 15% to 20% and beyond, depending upon the type of real estate investment.
(In the coming weeks we will be posting real life examples of clients who are sending us details of their investment successes.)
But, for now it’s time to get off the fence and move at least part of your funds out of the stock market in favor of income producing real estate using a Self Directed IRA or Solo 401(k). We’ll not only assist you in setting up a plan, we’ll point you to specific investments that make sense for a Self Directed retirement plan.
Retirement investors who want to own rental properties can move some, or all, of their funds into a Self Directed IRA or 401(k) for investment into income-producing real estate.
Contact us by calling 877-229-9763, or fill out a QUOTE form here...
