Although commercials abound promising you vast wealth with certain stock choices, the fact of the matter is that traditional investing is a financial death sentence if your goal is financial independence. The odds are simply stacked against you.
A rigged system with failed results
Despite the promotion, the only ones getting ahead with stocks are stockbrokers and insiders who have the system rigged. The stock market has performed since inception an average of 10% per year in returns. That’s including entire decades in which it did not advance at all, such as 1937 to 1957 which saw 0% increase. Based on historical averages, the stock market will soon plunge 20% to equalize the 30% paper profit of recent years and bring it back to 10%.
The myth of the stock market as a wealth generator
The sad truth is that nobody every accumulated any significant wealth at a 10% return level. Off of that 10% you have to pay tax, and then factor in inflation. Assuming 2% inflation and 40% tax rate, that’s only a net of 4%. Let’s be honest – at 4% you’re not getting anywhere. And, of course, you could also invest in a good old fashioned bond, Treasury or CD, but that whopping 2% yield will actually cost you money after inflation and taxes.
A comparison of an RV park investment to traditional types
So why is an RV park investment any better? Two reasons:
- Leverage. You typically buy an RV park using debt and a roughly 20% down payment. That allows you to buy something five times larger than you could afford with just cash. And this leverage gives your investment some real horsepower. If you can obtain a “spread” of just 3-points between the loan interest rate and the cap rate that generates a 20% cash-on-cash return. That’s twice what the stock market has produced on average.
- Rise in value of your asset. That 20% cash-on-cash return does not include the second leg of your wealth builder – the continual rise in value of your RV park as you raise rents and occupancy. If you assume that you can increase your net income simply 5% per year, that would double the value of your RV park in 15 years.
Putting it all together
So here’s the final stats. With an RV park you make 20% cash-on-cash if you can buy and finance at a 3-point spread. That’s twice as much as the stock market provides, on average. However, that $1 million RV park you buy, at a 5% per year net income boost, will be worth another $1 million over what you paid for it 15 years later. The combination of those two factors is what can transform a $200,000 investment down on a $1 million RV park to a $1,600,000 simple profit over a 15 year time horizon. Over that same 15 years, the stock market would give you around $300,000 before taxes and inflation. Ouch. And that’s how wealth is created.
Conclusion
If you want to create wealth, you can throw away all those brochures from Charles Schwab, Merrill Lynch and Chase Bank – unless you’re trying to tread water. Instead, you need to get outside your comfort zone and invest in a solid RV park. Even an average RV park investment will clobber the alternatives. And particularly now that the stock market is poised for a major correction.