Why Apartment Complexes Make the IDEAL Investment!
Published on: Friday, July 1st, 2016
You’ve worked hard and you’ve saved a tidy bundle. Perhaps in the bank, in a 401K, as equity in a property or maybe a self-directed IRA. Perhaps any combination of these options and more.
Let’s say that you’ve got a respectable net worth. Now what?
Do you leave it in the bank, sitting in equity or at the mercy of the stock market? Is it possible to turn that capital into positive cash flow, get your capital back again within a reasonable time frame and still have that extra stream of income?
Of all the investment choices, where can you find something that gives you a great return, tax advantages and security?
Whether you’re a seasoned investor or not, you want to find an investment vehicle that does all of this and has one more advantage: your Cash on Cash return has to beat inflation.
Your Cash on Cash return is simply the amount of cash flow you receive divided by the total amount of money you invested. For example, if you invest $100,000 and you earn $3,000 annually, then you have a cash on cash return of 3%
This is the problem with putting a big chunk of change in the bank today. Even though you may be wise to save, you’re actually losing money, and here’s why:
- If the average inflation rate is around 3%, it means that your money is losing 3% of its purchasing power each and every year.
- At the same time, the average savings account pays at or below 1% – meaning you’re still losing 2% of your money’s buying power each year.
- Even in a CD or other higher yield savings plan, you may get a 3% return. While you don’t lose, you also don’t gain… and what happens in a recession?
Oh yes, and there’s something else to consider. You have to pay tax on interest income on a savings account. This can cut your gain by 30% – turning that single digit interest rate into an even less attractive prospect.
For long-term wealth creation the bank is clearly not IDEAL – so what are you left with?
- Passive stock market plans like a 401K or an IRA.
- Purchasing stocks on your own.
- Investing in a business.
- Investing in real estate.
You probably know about the stock market. While you can get pretty decent returns from your 401K or IRA, these are still at the whims of the market. Think back to the fall of 2008 and what happened to everyone’s mutual funds or retirement accounts when the market collapsed…
Even if you take an active role by buying stocks on your own, it’s still pretty risky.
There’s nothing wrong with this – provided you’re not using your own saved money. If you want to be an active stock investor, it’s best to use money earned from a passive investment class like real estate.
As for investing your capital in someone else’s business – this can be very lucrative if the business succeeds. However, once again, you may not have very much control over this outcome and there certainly is risk.
So what would be the most IDEAL investment possible? What could you invest in that would give you maximum advantage with minimum risk?