Why Invest in Debt-Free Real Estate
An American Life Inc. investment pays superior monthly income and promises a generous capital gain in the medium term. Our strategy is safe, predictable and proven. Our limited partnerships offer a debt-free investment in commercial real estate. We know the market, buy carefully and spend what is necessary to maximize return on equity.
A real estate investment without debt...
- Means your capital is protected and will be there when needed.
- Provides a superior, steady return without gimmicks.
- Maximizes income and profit by not having to pay a mortgage (no interest bearing debt.)
- Being mortgage free, reduces risk of loss
- Real estate consistently stays ahead of inflation
- Real Estate avoids stock market volatility
- Provides a dependable, secure income for retirement, a rainy day or a kid's education
- Is reliable and is ideal for an investment of a self-directed IRA, pension, profit plan or 401K
Investing in Commercial Real Estate (American Life Inc.) vs. investing in a REIT
- Protect Your Capital
By law, a REIT must distribute 90% of its income and capital gain. American Life Inc., on the other hand, only distributes income. However, American Life Inc.'s actual payment amount over time is virtually the same as a REIT payout. This means that American Life Inc.'s payout is actually higher, because the one's capital base in American Life Inc. is protected.
- What Drives Values
REIT's behave like stocks (influenced by the interest rate), whereas an Investment in American Life Inc. asset values tracks with the real estate market.
- Diversification — a Sensible Investment Strategy
REIT's are a stock and are subject to stock market forces. Buying a REIT is not a diversification from the stock market; it's simply different type of stock. (Same casino, different table!) American Life Inc. is real estate, a completely different investment class. Diversification is the allocation of one's savings among different asset classes. All stocks, whether small cap, large cap, industrial, tech, foreign, REIT's, etc., are simply different kinds of stocks. A diversification strategy encompasses investment in different asset classes (e.g., real estate, stocks, bonds, commodities, metals and currency, etc.).
- Debt Financing vs. No Debt
Almost all REIT's borrow and shareholders have no rights to agree or disagree — an investor is merely a shareholder. American Life Inc. does not borrow to finance purchases.
Why does American Life Inc. believe in holding assets without any debt? Primarily, as with any business, it's better to own free and clear rather than leveraging it. Borrowing against real estate merely converts a real estate asset to a gamble on interest rates. One is gambling that the rents will cover debt service, leaving one with the capital gain with no out-of-pocket expenses. If interest rates go up faster than rents, one has negative cash flow. If the negative cash flow continues, one runs the risk of losing the property to the holder of the mortgage. Taking on a mortgage, as REIT's generally do, is a gamble. One is betting that one can beat interest rates, whereas being debt free focuses on long term capital appreciation. Our belief: If one is saving for retirement, don't mortgage if you can help it. American Life Inc. wants the asset to perform for the long term and be there when our investors need their capital.
- American Life Inc. is a Less Expensive Investment!
REIT's are more expensive than an American Life Inc. investment. Most REIT's sell at 25 times earnings. An American Life Inc. product produces between 5.5% and 6.5% and is selling at 18 times earnings. With American Life Inc. you pay less for your income stream and you retain your capital gains. The reason American Life Inc. offers a higher return is that it isn't publicly traded. Publicly traded stocks generally sell for higher earnings multiples because of the costs of liquidity. You can sell your REIT stock at a moment's notice. American Life Inc. isn't as liquid; a sale may take 30–60 days. The cost of instant liquidity is reflected in the price of the investment.
All stocks are subject to brokerage and underwriters', fees which increases the price of the investment. If instant liquidity is not an issue, one is better off with an American Life Inc. investment.
- Retirement: living on Income rather than Savings
If an income stream is sufficient to fund retirement, one need not sell the underlying asset and thereby gamble on the market timing risk and capital gains tax. It's difficult to predict a retirement based on capital gains, i.e. stocks and real estate subject to mortgage, because in order to maximize one's capital base, the market must be favorable at the time you convert your capital assets to cash. If one reaches one's target retirement age in a down market one may not realize enough sale proceeds to fund retirement. If interest rates are low, the return on your sale proceeds may not be sufficient. Also, one pays tax for the privilege of liquidating assets. Not only is timing an issue, but one is gambling on the tax rate at the time of sale. Timing markets to cooperate with ones retirement age is a matter of luck and rarely successful.
An investment in debt-free real estate eliminates these risks because it produces a consistent income stream. One can simply estimate their retirement income requirements and invest in debt-free real estate accordingly, with the comfort of knowing that one's capital is securely invested until it is needed.
