Disclaimer: This article is solely intended for informational purposes and in no way constitutes legal or financial advice because it is the personal point of view of the author based on his own experience. Each person reading this should analyze their particular situation to determine if the information presented here can be applied or not. Looking for financial advice is recommended before making any decisions!

Let’s start analyzing the second group of investments listed above:

1. Stocks are a form of investment that may be profitable in two ways: Some companies pay dividends to their stockholders, let’s say quarterly, which depends on the company’s profitability. Additionally, a stock’s price may increase over time for which holders may sell them in the open market to make a profit. However, price increases are not guaranteed because stock market values depend specially on the laws of “supply and demand”. This means that a stock’s price also may drop or stay approximately the same for a long period. What is the downside of stocks? If a company starts generating lower profits, which can occur for multiple reasons, the dividends paid to the stockholders may be reduced or eliminated; most likely, this will cause a drop in the stock’s market value. Also, if a company’s products and/or services become obsolete because better options arise, the stock’s price may drop dramatically. On the other hand, the stock market has volatility fluctuations caused by external factors such as geopolitical events and the release of economic indexes.

Because of those risks, many investors use mutual funds to manage their stock investments with the argument that if the market value of some stocks goes down, this  may be neutralized by having in the portfolio other stocks which market value may go up. This allows maintaining a relatively secure investment that may generate profits. These same companies also manage retirement investments.

Alternate investments speculate on the changes in the stock market. Examples are stock derivatives (options and futures) and stock Indexes such as S&P500, NASDAQ, and Dow Jones. These indexes are composites of hundreds of stocks. Professional and amateur traders use different indicators including Fibonacci extensions, previous minimum or maximum prices, and different average price lines to open or close transactions with the intention to obtain profits and/or to prevent losses. 

2. Commodities are any raw materials that can be bought and sold. They are classified into primary agricultural products (crops, livestock, and animal products), energy sources (e.g., crude oil, natural gas, coal), and metals (gold, silver, platinum, copper, palladium). When a person or company invests in physical commodities, as producer or intermediary, any possible profits are obtained only after selling the specific commodity. However, many investors (people and companies) do not trade the physical commodities. The preferred and more simple way to trade commodities is through brokers of the speculative market in the form of derivatives (options and futures).  

3. FOREX (Foreign Exchange) is a worldwide decentralized market for trading currencies of different countries in pairs. Examples of currency pairs are EUR/USD (Euro against US Dollar), USD/JPY (US Dollar against Japanese Yen), and GBP/AUD (British Pound against Australian Dollar). With daily transactions of more than six trillion dollars, FOREX is the largest and most liquid asset market in the world.  Some of the transactions are directly related to international commerce, trading, and tourism. Additionally, commercial banks, central banks, and hedge funds participate in FOREX to protect their capitals with currencies considered more stable/stronger, to speculate on geopolitical events or economic news, to gain on currency swaps (a form of long-time investment), and to diversify investment portfolios. Trading FOREX can be done with high frequency computers with automatized systems.

FOREX brokers in some countries are regulated, but still there are some brokers located in areas of the world that are not regulated at all. FOREX exhibits the highest volatility levels of the trading world. Frequent jump prices of one or more currencies are caused by various reasons, including economic indexes being released in the currency’s country, geopolitical events, and volatility in other markets such as the stock market or certain commodities (e.g., crude oil, gold). Even a speech from a nation’s president or central bank director may cause instant volatility on their currency that may last from a couple hours to various weeks. Besides trading instant cash through a broker in FOREX (known as “spot market”) other ways to trade are derivatives (forwards, futures, and options).

4. Cryptocurrencies are a newer form of investment that has allowed some people to make big profits, even fortunes, although many people have lost money, as well. Because there is neither  interest nor dividends being paid to the investors, the only way to make profits is by selling the ‘currency’ for a higher price than the purchase price. Cryptocurrencies are still controversial and, therefore, regulations vary by country. Unfortunately, some cryptocurrencies have been scams promoted through false multi-level marketing systems that have defraud most of their investors.

On the other hand, the public should be aware that because transactions made with some cryptocurrencies cannot be traced by any public or private regulatory agencies, they have become a preferred way to pay for illegal activities, such as human and human organs trafficking, drugs trafficking, selling weapons to terrorist groups, and hiring mercenaries.

It is important to understand that stocks, commodities, FOREX, and cryptocurrencies markets and all their derivatives are prone to manipulation by the “bigger players”, which puts the amateur and smaller investors in great disadvantage.

Now, let’s focus on Real Estate. This market is hard to manipulate because:

·  It depends on the human needs for space (explained six paragraphs below on "A.").

·  It is driven by the laws of supply and demand. In Housing, for example, based on three variables: the number of houses needed by the population in an area or country, the actual number of houses available or to be built, and the number of buyers who are willing and financially capable to purchase those properties. The market value of a specific type of properties increases when the supply is low, and the market value drops when the supply is too high, for example, if many builders decide to build very fast in the same area at the same time without evaluating the real needs in the market.

·  Its trend cannot be manipulated by the big banks, hedge funds, or the biggest builders. However, macroeconomic policies from the government with the help of the central bank can cause changes to the real estate market (e.g., changing the interest rates). Although, because the market is so large and has so many additional elements involved, such as migratory movements within the country, these policies can take months or years for their effects to be noticed and do not necessarily affect all areas and types of properties in a similar way.

At this point, two important terms must be defined:

Land: this is the piece of earth, including the surface (with its plants and trees), the underneath soil toward the center of the Earth (with its minerals and water), and the airspace above the surface. Land is limited and cannot be created, except for some man-made artificial islands built after piling rocks and sand.

Real Estate: includes both the land and all the buildings on it.

Let’s begin comparing real estate investing and the other group of investments (1. to 4. above):

A. During previous periods in history, when trading stocks, FOREX, and cryptocurrencies did not exist, and the ways of trading commodities varied depending on the economic system, owning land and real estate has always been a key factor to wealth. Today, even as having those four big forms of investment available, land and real estate still keep the importance for investing. Actually, based on the definitions of “Land” and “Real Estate”, people cannot live without the space they provide for:

·      - Housing: everyone needs a house to live, either owned or rented. And still            any rental property has an owner that holds it as a business/investment.

·      - Space to produce (e.g., growing crops, breeding livestock, harvesting                  timber) or to extract (e.g., minerals, crude oil). Most world's population need            these goods. 

·      - Space to work (e.g., chemical plants, factories, warehouses, stores, offices,        restaurants, hotels, gas stations, hospitals, churches, government buildings).

Therefore, besides people’s need for housing, all types of companies and businesses either with stocks or not, the banks, hedge funds, mutual funds, etc. need real estate to operate, either owned or leased.

B. If trading stocks, commodities, FOREX, or cryptocurrencies were to change in the future or any of these forms of investment were to be replaced by new ones, most likely investing in real estate will not disappear. Actually, owning land and real estate has been the most important possession in human history, which, even nowadays leads to wars.

1.    Buying a "home", a personal investment : Although most people are not              real estate investors, buying a house (their home) is usually the greatest                purchase and investment a person or family buys in their lives. Aside from not        having to pay rent, it has various psychological and financial advantages.

       Because most people do not have enough cash to buy their house, they get a       mortgage loan to be paid within 10, 15, 20, or 30 years with a monthly                     payment that is usually less than the rent they would be paying for a                   similar house. After the years, once they pay off the loan, the property will               be theirs, free and clear. Besides the great advantage of being able to                     enjoy living in the house and paying for it with small monthly payments,                   the property may appreciate over time.

       Conversely, there is nothing alike this with any other type of investment. There       are no 10, 15, 20, or 30-year loans available to purchase stocks, commodities,       or to trade FOREX or crypto currencies. These long-term loans with reasonable     interest rates only exist to buy real estate. 

2.   Alternatives for real estate investors:

       a) Buying rental properties, such as single-family homes, multi-family                     homes, apartments, townhomes, vacation rentals (e.g., waterfront,                         glamping), hotels, offices, commercial buildings, warehouses, etc., often                 generate a steady income from rent payments. Besides the income for                   rent, in different prior periods some properties have appreciated 100%                     within 4 to 25 years, depending on the location and the real estate                           market trend.

          Some investors pay cash for a property that either needs some repairs or is             ready to be leased after closing. They expect to get a gross return on                     investment (ROI) from 8% to 18% annually. Rental properties in the United             States also benefit from tax deductions on the income they generate,                     as property tax, depreciation, operating expenses (managing and                           conserving the property, insurance, utilities, advertising, supplies),                           and maintenance or repairs required to keep the property in good                           operating condition.

          Other investors prefer to use financing to purchase rental properties. The                 strategy is to use one of the various loans available (e.g., conventional,                   investor’s) with the lowest possible down payment and interest rate. The                 income from rent helps for the mortgage monthly payments,                                     management and maintenance expenses, taxes, insurance, etc., and still               leaves some cash flow for the owner. After time, as the property appreciates           and some amortization to capital has been paid every month, the owner                 gains equity. Some investors would sell the property and use the equity as a           down payment to buy one or more rental properties.

          Other investors would refinance the loan to take money out and use that                 money as down payment to buy another investment property. Besides the               tax deductions allowed for rental properties listed above, mortgage                         interest could also be deducted as a business expense to lower taxable                 income. Finally, if the investor holds the property until the loan is paid                     off, higher cash flow from the monthly rent will be generated because                     there is no mortgage to be paid anymore.  

           Note that house rentals are usually the most needed in the big cities and               cities growing fast, not only for people already established there who do not           own their home, but also to be rented by the season or by the night in the               most touristic areas. That is why real estate investors who like to buy rentals           of this type usually hold these tangible assets and use both the cash flow               they generate and the leverage of the property’s appreciation to get new                 loans and acquire more properties.

      b) Buying land is another investment alternative. One strategy is to buy a lot             of any size or use (zoning), hold it for a few years without making any                     changes to it, and sell it later after there is a possible profit.

          The other strategy is to buy productive land to grow crops or plant fruit trees,           harvest timber, breed and raise livestock, or recreational land (for hunting,               camping, hiking, bicycling, horse riding, ATV or motorcycle riding), all of                   which pay lower taxes. Other options are buying a nursery, a horse farm                 with training facilities to offer boarding for clients’ horses, or a fish                           farm. Likewise, buying a horse farm for personal enjoyment and                               business is a type of investment very well understood by the wealthy (read             here why).

     *Note: To find real estate opportunities with a better chance of appreciation, it             is recommended to have a real estate agent who knows the area very well             helping you choose and negotiate the properties that best fit your needs                 and financial goals.

      c) REIT (real estate investment trust) is another alternative to invest in real                estate without having to buy, finance, and manage the properties, or to put              additional cash for repairs. REIT is a company that owns, manages, and                operates commercial real estate. Some of these companies specialize on              a particular property type or multiple types, including apartment                                buildings, hotels, warehouses, medical facilities, offices, shopping                            centers, and cell towers. Investors (individuals, investment funds,                            banks) buy shares of REITs publicly traded in the stock market or buy                      shares of non-traded REITs from private brokers or financial                                    advisors. The holders earn a share of the net income (dividends)                            produced by all the properties the company owns. REIT shares                                can also gain value over time.  

         On the other hand, mREITs (mortgage REITs) do not buy physical real                    estate, but they finance real estate from which they earn interest. The net                income of the company is shared with the investors, as well.

    C. Real Estate is a tangible asset which land portion cannot be created,               except  rare cases (e.g., Palm Islands in Dubai). Therefore, this is a very                 important form of investment for the wealthiest people; no matter how they             have made their fortunes (highly-paid jobs; trading stocks, commodities,                 FOREX, or cryptocurrencies; developing apps or creating their own                         companies; real estate; or having inherited money), all the wealthy                         people invest heavily in real estate to secure their fortunes and                       to safeguard a legacy for their families. To confirm this, I suggest                         you search the types of real estate that the three world's wealthiest                         men in 2021 have been investing in during the past years:                                       Timberland farms? Agricultural land? Rental properties?

If after reading this article you decide to invest in real estate and want to be protagonist in the growth and development of fascinating Ocala (Florida), one of the fastest growing cities in the United States, contact us and tell us about your preferences. We are ambassadors of Ocala’s fabulous lifestyle to the world and will help you choose and negotiate the best properties TO ACHIEVE YOUR FINANCIAL GOALS in this beautiful “Dream Land”.

Purchasing real estate in Ocala is available for US citizens and permanent residents, as well as for foreign nationals living abroad who want to invest in this wonderful country of freedom. 

*Send US a message (see column on the right) with your name and email address or call/text/WhatsApp to (352) 266-2782.