His passion for business and for life has provided him with wealth, but he has not spent time considering how he can best manage his money. He’s not even certain of how much money he has, but he does know his money has not been producing much for him. People that manage their wealth often find it to be a full time job, which can be daunting. That’s why we are in discussions with him to purchase as much as $25 million worth of homes using our Rent to Own system.
Right now, he is only getting slightly better than 0.5% back on his money in the volatile stock market. In the last 90 days or so the Dow Jones Index has lost 10% and the S & P 500 index has lost 12%. If he wants a higher return and better security, he knows the answer is real estate. Of course real estate fluctuates too, but this is what he said to me: “If we buy 100 homes using your Rent to Own system with market rates, I don’t have anything to lose. If they go down in value, I don’t care, because the rents will remain the same and my cash flow will be far better and more stable than it is in the stock market right now.”
Now he is also willing to take a lower return than what we are producing today with our fund, ROI Strategies, since he wants to buy them with all cash and no leverage. Say we buy $25 million worth of single family homes tomorrow and rent them out. The next day the real estate market just tanks and loses 50% of its value. “So what?” he thinks. “The rents stay the same, so therefore my cash flow stays the same.” If he can get a 7% return on his cash that won’t fluctuate, then what does it matter that the homes are worth so much less? They will eventually come back and in the meantime, he can collect his return.
Now some would argue that real estate is illiquid and that is bad; the stock market is better because it is liquid and you can get out whenever you want. However, it’s not so easy to predict the stock market. It’s difficult to predict the right time to get in in and the right time to get out. Illiquid investments like real estate usually work in the investor’s favor. When the inevitable downturn comes, people get nervous and sell off their stock portfolios almost always at the wrong time. It is easy to do and it is human nature. You can’t do that with real estate. In fact, you probably will be stuck with your property unless you just fire sale it. These markets always come back. It may take years to accomplish, but historically, that is what has always happened.
So it’s clear you can wait out the dip in the market, but how long do you actually have to wait? It will depend on where you are at in life at the time. Do you have 5, 10, 15, 20, or 30 years to make it happen? Instead of waiting through years of uncertain market volatility with stock investments, doesn’t it make more sense to have the cash flow and income from a single family home while waiting for the market to rebound?