I just wrote about stock investing.
In Korea, many people believe that real estate investment is better than stocks.
In fact, both real estate and stocks trend upward in the long run. Although the rate of return will vary depending on the real estate region/stock type, it is natural for the price of real and financial assets to rise upward in a capitalist society.
But I do not like real estate for the following reasons:
1) Unlike stocks, which can be purchased with just several dimes, real estate requires a lot of initial capital investment
2) In order to raise this initial capital, most people have to take out a loan, which incurs interest costs and principal burden
3) If it is a real estate is bought for renting out and rental income, it takes time and effort to find tenants and maintain rooms/housing
4) Real estate is less liquid than stocks, so it is much more difficult to convert it into cash
5) You have to pay much higher taxes, such as acquisition, property and capital gain taxes
Some ask, “well, do we not need housing to live in anyway?”
It is not wrong, but if your goal in life is to achieve financial freedom, the story is different.
The key to gaining financial freedom is “to collect assets that generate positive cash inflows that put money in your pockets when you are young, and minimize liabilities that generate negative cash outflows that take money out of your pockets.”
With this in mind, a house is not an asset, but rather a liability. Let me explain why.
When you buy a house, you have to pay the principal and interest on the loan to the bank, and various taxes to the government.
People ask, then do you want to live on a monthly rent for the rest of your life?
My answer is, “it is more important to build a system that puts money in my pocket. With this money coming into my packet, I have more than enough money to pay out rent.”
In the end, it is a question of timing: at least when you have to accumulate assets at a young age, you should not take out excessive debt to pay to buy a house.
As you get older, you will be able to buy real estate with your surplus funds after you have created assets and systems that put enough money in your pocket.
The timing will be different for each person and each situation, but I think it should come at least after the age of 40, when investment preference starts to be more conservative.
What if real estate prices go up in the meantime, and you never have enough money to buy a house? Some people keep asking.
There is a god-like belief that real estate prices never fall, but in reality, this is not the case based on the past data.
All real and financial assets have ups and downs. Personally, I see that the best time to buy a house in Korea is when the Korean household debt explodes with the US raising the interest rate (I wrote this article a few years ago, but this is already happening in Korea).
So, my plan is to invest in foreign assets in foreign currency, and buy cheap Korean assets using my foreign currency and assets that have risen in value when a crisis strikes Korea—that is, when the value of the won falls and the real estate value falls in Korean currency, Won.
No one knows if or when this will actually happen, but at least I do not plan to become a slave to the Korean government’s taxes and bank interest by tying my income to 30 years mortgages (which, unfortunately, many young Koreans have done already).
It is far better to build up your assets and cover your monthly rent with the cash coming from your assets than to be a slave to the government and banks.
And one way I am doing is collecting dividends from Singapore REITs, which I will write in my subsequent articles.
Korean article can be found here.
