Homeowners
Means of Forced Savings
By
Jan 28, 2006, 23:09

One of the primary benefits of investing in real estate is that making payments on property is a means of forced savings. Each month the owner of a piece of property must make a mortgage payment that, in essence, represents a deposit. Every time you make a payment you reduce the principal sum due on the mortgage, thereby increasing the equity. In essence, you're forcing yourself to save. It's a structured activity. 

You can't sell real estate to solve your immediate financial problems because real estate is not easy to sell. You have to find another way to solve your problems. Some financial advisers think that it is a disadvantage. But I think it is a terrific advantage because it compels you to think things over before you make the decision. Suppose you have a diversified investment portfolio and owned both stocks and real
estate. Suddenly, a crisis occurs and you need $50,000. the first thing you would sell is the stock. If you didn't have any stock, you would figure out another way to solve your dilemma. You might borrow some money on your real estate or you might figure out another way
to obtain a loan, but you aren't going to get rid of your real estate because it usually takes a period of time--weeks, months, or even
years--to sell.

So you think of other ways to solve the problem. To me, that is a tremendous, built-in advantage of investing in real estate. It forces
you to hold on to the property and, rather than receive a small profit, gives it time to appreciate. Maybe your dire financial situation or
problem will pass. Once you get over that hurdle, you'll still be left with the property. If you hold it and keep it for the long pull, you'll be much better off.

Many people just don't have the ability to hold on to their riches.