In the great debate between real estate versus stocks, I give a slight nod towards real estate. When I was young, I wanted real estate because having it felt like I had arrived. Now that I’m middle-aged, I want real estate so I can provide a stable environment for my family.
After taking over 500 long walks around my neighborhood since 2014, I’ve made a very interesting observation. All the adult kids still living at home seem to be men, none are women. Within a four block radius, I often see between 4-6 adult young men waving goodbye to their moms or washing their cars in their parents’ driveway.
This, in turn, made me wonder, where have all the adult women children gone? What are the reasons men seem more destined to live at home with their parents than women? Perhaps maturity is what drives women to be more independent.
This observation worries me because I have a son. I want him to feel the joy of independence well before he’s 30 years old. If he still lives at home playing video games all day into his 20s, as a father, I will feel like a complete failure.
But sometimes, no matter how hard we try, we’re still destined to fail and there’s nothing we can do about it. Therefore, I got to thinking about how real estate can be used as a hedge against many bad or suboptimal situations. Here are 10 things I can think of.
Real Estate As A Hedge Against Bad Things
1) Your kid slacked off in school. Let’s say your kid did poorly in school because he was not pushed to study. As a result, he’s unable to get a job that pays enough for him to live on his own. You wish you had been more present in your kid’s life growing up, but you had a demanding job or simply wanted to slack off yourself. Having real estate saves your son from living on the streets.
2) Your kid is simply not very intelligent. The law of averages dictates that most of us will have average intelligence. But some of us, through no fault of our own, will simply have below average intelligence. If you combine below average intelligence with poor judgement, you might get into some serious trouble.
For example, growing up I consistently demonstrated poor judgement by hanging out with the wrong crowd. We smoked, drank, shoplifted, drove without driver’s licenses, you name it, we did it. As a result, we got into trouble at school and with the law. Luckily I had already gotten into a decent university before I got into more serious trouble. I decided to do my best in college and was given a second chance by a woman named Kim Purkiss whom I will never forget. Thank you Kim!
I could have easily ended up living at home with my parents, working minimum wage jobs for the rest of my life if it wasn’t for my lucky breaks. As you can tell from my writing, I have very average intelligence. And I already shared with y’all that my SAT score was mediocre in a previous post.
3) Your loved one has a disability that makes life more difficult. We have a neighbor who has a daughter with severe cerebral palsy. She is confined to a wheelchair and needs care 24/7. Bless her and her parents.
While they do not live in the house next door full-time, their 29 year-old-son who cannot find a full-time job does. They come to visit three times a week to water their plants and clean the house. They live about an hour away in a larger house that’s all on one floor in order to be wheelchair friendly.
I pray that none of us ever gets into a debilitating accident. But if we do, hopefully, we’ll have a stable home to come home to.
4) You need a break from your marriage. Some marriages might benefit from an extended break instead of a complete break. Sometimes a one or two week vacation from each other is insufficient time apart to prevent a divorce.
If you had only own one property, you’ll likely see each other daily. As a result, bitterness might fester and grow. However, if you owned another property close by, you could temporarily live there until you stopped getting on each other’s nerves.
I know one couple who ended up living apart for six months to heal their marriage. Although the couple forwent about $25,000 in rental income, they saved at least $30,000 in lawyer fees, not to mention the breakup of marital assets.
5) You get a divorce. If you can get a piece of property in a divorce, you’ll be OK. But for some couples, only one may get the house because there might only be one house in the portfolio. The person who doesn’t get the house may have a much more difficult time surviving.
One person I know has had to move four times in the past five years because her ex-husband got the property. Sure, she got some investment assets, but it was not enough to cover all her living expenses without a serious drawdown.
Their son, at one time, used to be able to commute just three blocks between his parents’ respective apartments. Now, he needs to spend an hour to get to his mother’s place because she’s had to move to a cheaper location. After not working a full-time job for 13 years, she has had difficulty covering her basic living expenses with freelance work.
6) You get fired from your job. If you lose your job, you are on thin ice if you ever need a new place to live. Forget about buying a place when you don’t have W2 income and need a job. You are dead to banks. Refinance before leaving your job please.
Few landlords will rent to an unemployed person. But if you own your home, so long as you are paying your mortgage, if you have one, you’ll be fine. Even if you stop paying your mortgage, you probably have at least a year before the sheriff comes knocking.
7) You lose a parent. Couples rarely die at the same time. When one spouse dies, the surviving spouse is often in a precarious situation because of caregiver needs. Therefore, to provide care, you may want to have your parent move in with you.
If you don’t own property, then you may lack the flexibility of adding a new occupant on the lease. You may also be restricted in the types of things you can install in the property to make the property more handicap friendly.
8) You have a friend in need. You may have a friend who just went through a bitter divorce, lost her job, or experienced some other difficulty on this list. If you have an extra property, you can lend it to her rent-free until she gets back on her feet.
Sure, letting her to sleep on your couch is another possibility if you don’t have a spare property. However, your friend might also have children or a partner who would want some privacy. Likewise for you yourself I’m sure. Rental leases often don’t allow an extra guest for an extended period of time.
9) Your child becomes depressed at work. Sooner or later, we all lose interest in our jobs. But most of us have to gut it out due to a lack of alternative income streams. Quitting your job to become a travel blogger or an artist is probably not going to pay the bills for the first several years, if ever.
However, if you owned a portfolio of rental properties, you might easily hire your melancholy son or daughter to manage them for you. What a gift to be able to throw them a lifeline. By giving them an important responsibility that you may no longer want, you could create a win-win situation – a sense of pride for your child, more leisure time for yourself.
Heck, even you might get depressed at work too. If you had a large enough rental property portfolio which could pay for all your living expenses, you could decide to retire early and become a part-time property manager.
10) Rents shoot through the roof. Renting is great for the flexibility it provides. But if you end up living in an area for more than five years, renting is usually a losing proposition due to inflation. Owning real estate is not only a hedge against rents shooting higher, but a concentrated bet on rents shooting higher for greater wealth.
Recently, I was talking to the owner of a sandwich shop which I have been patronizing since 2001. He told me his biggest regret was not buying his building back then. If he had, at age 68 he wouldn’t still be making $10 meatball sandwiches.
The return on rent is always -100%.
Be Neutral Real Estate At The Very Least
Life is messy. The good times never last forever. We will inevitably face some sort of suffering that will challenge our faith. The more people we bring into our lives, the more opportunities for suffering.
By owning at least one piece of real estate, we’re able to ride the ebb and flow of the real estate market. But more importantly, our piece of real estate can provide shelter from so many of life’s unpredictable storms.
As long as every one of us has a place to live, surviving is much easier. Relatively speaking, food and clothing are inexpensive. Once we have our basic needs met, only then can we go on to do great things.
Of course, all the benefits of owning real estate are predicated on being able to actually afford the asset over the long term. If one is too stretched, then owning real estate can also be a tremendous burden.
As I grow older, I no longer see owning physical real estate as a potential moneymaker, but rather more as a life facilitator. For potential profits, I’d much rather invest in alternative real estate assets that have no hassle. I suspect you’ll feel the same way.
If in 25 years my physical real estate portfolio appreciates in value, then great. But in the meantime, I’m going to try and use my properties to provide the best life possible for my family.