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So, why have we chosen real estate as our primary investment vehicle?
With real estate, you can be as hands-on or hands-off as you want, to build a big portfolio of real estate, I recommend the hands-off route as much as possible. Yes, you can save money by doing it yourself, but you risk burnout thereby short-circuiting your rei career before it has a chance to really get going. Besides, you don't get wealthy from your own efforts, you get wealthy from the efforts of others working for you.
You use OPM (other people's money, i.e. the bank) to build wealth. You can do this to a small degree with stocks (called margin), but if the stock goes down watch out for the margin call! Since you put up only a fraction of your own money, your cash-on-cash returns from using the bank's money are great.
The time frame for changes in real estate are much slower and less stressful, giving you much more time to react. A real estate 'crash' happens over months or years, whereas a stock market crash can happen in minutes. If a stock goes to zero, it is worth only the paper it's printed on. Real estate will never be 'worthless' because you can actually go touch it and as we've said before: people will always need a place to live.
Houses are like little piggy-banks sitting out there growing on their own. The more houses you have, the more you benefit from this automatic growth (appreciation). Also, if area rents go up say $100/month, if you have 10 houses you automatically get a $1000/month raise. Try that one at your job!
When your houses appreciate and you accumulate some equity in them (and if you buy them right, you get instant equity right off the bat), you can then use that equity to buy more houses. Getting the ball rolling to begin with is the hardest part. Once the ball is rolling it gets much easier. That initial stage when it is hard is crucial though, you are forced to learn the skills of how to spot and pursue good deals and walk away from the bad deals. If you started investing with a million dollar chunk of cash in your pocket, you would be more likely to settle on marginal deals or flat out bad deals. Too many of those and your ship will sink. Starting off with little or no money forces you to stretch yourself and learn the lessons you need to learn. It will also be a gut check to see if you are really called to real estate, if you walk away too easily then perhaps it wasn't for you in the first place.
In real estate, you can literally create something from nothing. Learn to see things that others cannot and learn to capitalize on that vision and you will be rewarded for your efforts. It amazes me how many people who buy houses cannot see past the furniture... They look to buy the house and the furniture isn't right so they move on. Hey, that furniture won't be there when you buy the house anyway! Develop the skill of walking into a smelly house, and instead of being grossed out and walking out... begin to think of that smell as the smell of money and opportunity.
I like doing hard work when the fruits of that work keep paying off over and over in the future. At my day job, I do a task and collect a paycheck and then that work I just performed stops paying and I have to go to work again and do the same thing to get paid again. In real estate, our hard work in finding a good deal will keep paying off in the future (even after we are gone).
Even if you do make a questionable deal in real estate by paying too much, it isn't the end of the world. Our RE lawyer put on a presentation one time about buying foreclosures and he said something that stuck with me. "What's the difference between a good haircut and a bad haircut?" ----- "7 days". In other words, even if you pay a little too much, that house will go positive eventually. Just don't do it too often - again, develop the skill of spotting good deals from bad ones and then you won't have to deal with "bad haircuts".
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