King Solomon advises us in his Proverbs to seek wisdom over gold and silver. And it turns out that in these modern times, wise investors recognize that gold and silver aren’t the most prudent of investments for a return that keeps on giving. As the prices of gold and other precious metals bounce up and down in response to conditions in various parts of the world, real estate beats the glittery stuff hands down for long-term returns.
Precious metals – gold, silver and the more exotic ones such as platinum and palladium – fluctuate in price depending on a host of market variables. As Shawn Watkins, founder of Investors Workshop, puts it, an investor who invests, say $40,000 into gold, must hold that gold until prices reach a point where it makes sense to sell.
That’s when the investor gets to make a profit. But what then? The tax man comes calling. Having made money from the sale of an asset, our precious metals investor faces the dreaded capital gains tax, which can end up taking a sizable nibble out of those profits.
And speaking of tax matters, our investor won’t be able to claim any deductions or other benefits on that gold either. Once it’s gone, it’s gone – and the remaining profits may not be large enough to get back into the investing game – at least not until gold prices fall.
Suppose the investor put that $40,000 into real estate, using it for down payments on a couple of houses. Now, although he’s faced with mortgage payments and upkeep on the two properties, he’ll be seeing an annual income from both. What’s more, if our investor is committed to the “buy and hold” approach to property investing, he won’t have to worry about capital gains – unless he sells the properties.
Plus, that investment in residential real estate opens doors to a long list of tax breaks – not just once, but every year our investor owns the properties. It’s been said that real estate is the most tax-favored of investments, and the long list of those benefits include depreciation, exemptions and credits for energy efficient upgrades, and even travel to and from the rental property.
Real estate prices may rise and fall, but as Jason Hartman says, as long as there are people, those people will need a place to live – and economic fluctuations work in the favor of those who can provide those places. All that glitters is not gold. But what creates real long term wealth for investors doesn’t glitter at all – it just yields steady returns, year after year. (Top image:Flickr/imagesofmoney)
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