What Makes Real Estate Unique?

By Bruce Firestone | Uncategorized

May 21

Why invest in real estate? 

“Every person who invests in
well-selected real estate in a growing section of a prosperous community adopts
the surest and safest method of becoming independent, for real estate is the
basis of wealth,” Theodore Roosevelt, US president

Before I deal with that, I’ll summarize why I think real estate might be the only practical way most of us can provide for ourselves, our families and our retirement because:

-governments are unreliable partners

-average CPP (Canada Pension Plan) payouts today are around $550 CAD a month/not enough to live on/the US does somewhat better–Social Security payments average $1,269 USD a month, source: https://www.cheatsheet.com/personal-finance/how-do-american-pension-plans-stack-up-against-the-rest-of-the-world.html/?a=viewall

-companies are also unreliable partners/private pension plans can crumble at any time


-interest rates are trending towards negative numbers in the US and may already be there in Japan and Europe

-no one can save their way to retirement especially in this low interest rate environment, you have to invest your way there

“Buying real estate is not only the best
way, the quickest way, the safest way, but the only way to become wealthy,” Marshall
Field, department store owner

-lower productivity growth means lower wages and slower wage growth further crimping people’s ability to save for retirement

-an aging population also means slower economic growth not just because people at a certain age leave the workforce but they also stop spending and going out (many elders sit in their basements eating TV dinners on their laps while watching Netflix so if you are running a business like say a restaurant, the future looks tough)


-a shortage of young people also means a shortage of entrepreneurs, the main engines of growth pretty much everywhere

-stocks/mutual funds/insurance/gold/precious metals/bonds tend to over promise and under-deliver


-GICs, t-bills, bank savings account interest etc are very low (and as I said above may be negative after taking into account bank fees and charges)

Alright, so what makes real estate unique?

1. cashflow from rents

2. capital gains versus income tax

3. develop a concession/franchise based on the fact that once you own a great location, it’s yours for all time

4. unearned rents (that’s a type of wealth effect, ask the author if you want more info on this)

5. depreciation reserves/capital dividend account/tax free dividends

6. no capital gains on your principal residence (at least in Canada)

7. no HST or GST or VAT on your purchase of a resale home in Canada

8. the opportunity to animate your residence by adding backyard storage shed, coach house, garage office, in home suite etc

9. home equity can be accessed fast (at least in countries with a developed financial industry)–home equity is the no 1 source of startup capital on this planet

10. inflation protection

11. reasonable transaction costs

12. monthly paydown of mortgage principal goes to the owner

13. protection against unlawful seizure by government (the crown in Canada)–expropriation is rare and compensation is required (at least in nations that repect the rule of law)

14. home ownership tends to improve overall citizenship

15. financing is readily available

“Buying real estate is not only the best
way, the quickest way, the safest way, but the only way to become wealthy,” Marshall
Field, department store owner

16. using leverage (OPM, other people’s money) helps kick-start your path to an independent income  

“Now, one thing I tell everyone is learn
about real estate. Repeat after me: real estate provides the highest returns,
the greatest values and the least risk,” Armstrong Williams, political talk
show host

17. markets aren’t usually too volatile and tend to recover over the long term

18. use the Warren Buffett methodology to become rich: buy low, buy in great locations, manage well, add value (animate!), refinance (don’t sell!), take money out (tax free!), repeat

19. most people have trouble saving

20. even successful savers tend to splurge every so often, so their savings melt away

21. savings in real estate are somewhat harder to get at so most people refinance only to buy more real estate not to go to Vegas and place all their money on “red”

22. owners of real estate tend to benefit from positive externalities–when cities/towns grow, add highways or light rail, add more density or intensity of use, property values go up without you having to do anything at all

“Don’t wait to buy real estate. Buy real
estate and wait,” Will Rogers,

23. real estate is not on wheels and your key assets don’t leave the office every night at 5 pm

24. dwelling unit occupancy and household size are continuing their secular decline so that even if populations in many developed countries are stagnant or increasing slowly, residential demand keeps climbing

25. ever heard the expression, “People will (choose) to work in a cave but prefer to live in a castle?” it means (again) that demand for all manner of residential services will keep increasing (in all likelihood)

26.  your future rests in your own hands

27. property management and leasing are core competencies, which most people can master–it’s not as complicated as running… say, Facebook

Anyway, that’s my take on things.

If you’re not going to put money in real estate, where else?” Tamir
Manhattan real estate investor

@ profbruce

postscript: a few years ago I created this notional spreadsheet about what makes real estate different:

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About the Author

Bruce is an entrepreneur/real estate broker/developer/coach/urban guru/keynote speaker/Sens founder/novelist/columnist/peerless husband/dad.