Real estate is one of my favorite investments and is great for the purpose of creating wealth. It’s highly leveraged and the government gives you several tax deductions to own it. And if done properly it can catapult you to wealth. What’s not to like?
It all started when I attended a real estate bootcamp in the late 1990s. (By the way, I hate bootcamps that charge you $5,000 or more, but that’s a topic for another post. In short they’re not worth it).
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With global liquidity at an all time high, stocks and other assets aren’t trading at multiples of profit or revenue, but rather as a function of how much money is chasing that asset class. With investors borrowing insane amounts of money via the carry trade and Chinese “investors” borrowing money from pawn shops at 36%/year to invest in the stock market, there seems to be flight from safety and a frenzy to invest in just about anything thats hot.
This reminds me of the good old days in 1999. When hairdressers and car salesmen used to give us stock tips! This scares me and it should scare you too!
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One of the basic criteria for the perfect investment is the ability to shelter your profits from taxes. If you can compound your money without having to pay taxes on it every year, you’ll become wealthier much quicker.
Normally investments like stocks, mutual funds and CDs are subject to taxes. But stocks and mutual funds can be sheltered from taxes by investing in retirement plans. Plans like a 401(k) or an Individual Retirement Account (IRA) avoid the tax hit when you put money into the account where it can grow tax-free until retirement. At that point, you must pay taxes on the withdrawals. However an account like a Roth IRA is the opposite. You pay taxes on the deposits, but the withdrawals are tax-free. Not only that, you need not wait until retirement either. After 5 years you can withdraw your deposits (but not the gains accrued) without penalty or taxes.
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