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The Little Book of Alternative Investments: Reaping Rewards by Daring to be Different by Phil DeMuth, Ben Stein

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Chapter Six

Conventional Alternatives II: Real Estate

In Real Estate We Trust

Wealth used to be synonymous with real estate (“real” means royal in Spanish). Whether you were King, Queen or just the Duke, Duke, Duke of Earl, your wealth consisted principally of land. The Little Book of Royal Investing, had it existed back in those days, would have advised you to get land and more land, since land was synonymous with wealth. Those without land—nearly everyone else alive at the time—led a hand-to-mouth existence.

The industrial revolution changed all that, catapulting us into a modern world where we have reached a point at which people need to be reminded that yes, real estate is an important asset class to include in their portfolios. Agricultural assets have given way to industrial assets and the financial assets that are predicated upon them, such as stocks and bonds.

There are two types of real estate: residential and commercial. By residential, we mean your house. Your house may well be your biggest asset. If you haven’t done so already, please buy a house. Houses are great—just ask Ben, who owns a surprising number of them. The U.S. government makes owning real estate too good a deal to pass up, especially if you can afford it. However, do not overbuy. As Adam Smith pointed out in The Wealth of Nations (1776), a personal residence is essentially an item of consumption, not an investment, alternative or otherwise. If you keep your home for a long time, it will turn into a significant ...

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