Why Real Estate Investing is Far Superior to Owning Stocks – Part 2

In my last blog post I stated there are at least seven reasons why investing in real estate is far superior to owning any other type of investment.  In that article I identified the first six reasons.  If you didn’t have the opportunity to read this article I suggest you do so now.  Click here.  Today I want to focus on the seventh reason which is often overlooked, and yet, in my opinion is absolutely the most important reason for owning real estate over any other type of investment.

Financial Freedom Defined

But before I do, let’s begin by defining financial freedom. By that I mean, what would it feel like to not ever have to worry about money again?  So how do you achieve financial freedom?  It is achieved when your monthly sources of passive income consistently and significantly exceed your monthly personal expenses. When that day happens you no longer need to work for a living. Congratulations! You can retire in style.

But notice I said passive income which is cash flow received that requires little or no effort to maintain it. Another name for passive income is mailbox money because it comes in the mail without lifting a finger.

And real estate in my opinion is hands down the best source of passive income you can invest in.

Two Potential Problems1. We invest in assets that don’t generate passive income

But there’s a problem. Actually, there are two problems. Some of you may agree intellectually that we should invest in assets that generate passive income, but most of us will fail miserably actually doing so. Why? Because we’ve all been brainwashed and incentivized to put our savings into an IRA or 401(k) plan. And what types of assets do you normally purchase for these types of accounts?  Stocks and bonds which generate little or no passive income.

2. We don’t understand the importance of passive income

The second problem is some of us don’t understand the importance of passive income. You’re thinking, “Why is it so important to generate passive income? I’m very happy with the return I’m getting on my retirement accounts.” Here’s my answer to that response.

You’ve likely seen the television commercial where people are asked how much money they think they need to save over their lifetime in order to retire well. Their response is typically “beats me” or something equivalent. That’s an honest answer if your investments are in most asset classes. It’s anybody’s guess, including the investment banking firm that produced the TV commercial. They don’t know either.

Retirement Outcomes

Now fast forward to the day that person retires. How is he going to live off his retirement accounts? He will live off them by slowly liquidating them over time. What happens if he lives longer than his assets do? He’s toast. He ends up like the vast majority of Americans who eventually are dependent on Social Security, family, friends or charity.  Hardly the “golden years” any of us are hoping for.

So let’s assume that you decide to invest in real estate instead of a typical retirement plan. How are you going to live off your rental properties? Are you going to slowly liquidate your rental properties over time? No. You are going to live off the passive income that is generated from your rental properties. And when your passive income from your rental properties coupled with your future Social Security checks consistently and significantly exceeds your monthly personal expenses, you have attained financial freedom. In other words, you could live to be 120 years old and you’ll never run out of money.

Passive Income is the Key to Financial Freedom

So passive income is the key to achieving financial freedom.  Does that make sense? It’s not your net worth, it’s certainly not the size of your retirement account. And real estate investing is by far the best source of passive income you can invest in.  And that is why owning real estate is far superior to owning any other type of investment.

Those are my thoughts.  I welcome yours.  What do you think is the best way to achieve financial freedom?

Doug Marshall is the awarding winning author of Mastering the Art of Commercial Real Estate Investing and the online course The Great Game of Real Estate Investing.

The post Why Real Estate Investing is Far Superior to Owning Stocks – Part 2 appeared first on MarshallCf.