Worrying About Opportunity Cost is Your Competitive Advantage

Rather ironically, I am in the real estate sector, but does that mean I think investing in real-estate is the best use of capital?

Absolutely not.

Last year I remember arguing with someone on X (bored obviously) about the UK property market and potential returns that one could expect.

For context, the story goes back to London, predominately one of the biggest rip off places to ever consider about putting your money.

Subject A (let's call him Mark), informed me as I slandered his desire to keep raising his tenants rents, that his total investment (deposits not including debt) was £170k including taxes and he should be compensated as a result.

My answer was of course, ‘billion dollar brands have been built from less than 5k’

This summary of how this tit for tat went is an eye opener to the opportunity cost of your investment.

His £750,000 house that required £170,000 up front investment, is struggling to yield 5% and has to continuously squeeze working families for more money.

I proceeded to politely inform him that his ridiculously overpriced rental that cant keep up with inflation has actually cost him millions in lost revenue, ie; opportunity cost.

This level of investment could have acquired small business, backed VC’s, funded AirBnB even, however, instead it was tied up making next to nothing (his words).

🔑 Think Differently

Before you just dive head first into a ‘rental property’, think to yourself what other options there might for investing.

Now, not everyone is a financial market wizard, and that’s okay.

But did you know that when everyone tells you how risky stocks are, no matter how many turbulent times we go through, the S&P500 has returned 10% per year on average since is was founded.

Not too shabby at all. Just a plain and simple ETF could do the job.

I could go down a rabbit hole of economic policies and politics here, but in summary it comes back to opportunity cost.

And investing in buy to lets or alike just ties up so much capital that is widely exposed to tax, deprecations, non payments, repairs and a mountain of other issues, that it really is not the most efficient way to increase wealth in this era.

The Real Cost of Your Decisions

So, let’s take a step back. I get it, real estate is a safe bet. It is within our comfort zone without too many unknowns.

But comfort doesn’t always equate to growth, especially when your capital is tied up for years with little to show for it.

Mark’s property? It hasn’t even reached the stable stage. Its stagnant.

The issue with traditional investments like property is that they don’t scale. You’ve sunk money into something that only produces modest returns year after year.

That £170k investment might give you a 5% return, but does that justify it when you could’ve been making a far more significant return elsewhere?

Real growth happens when your capital is working for you, not when it’s tied up in something that just sits there.

Businesses, on the other hand, don’t have that same limitation. They can scale and adapt quickly. They can grow exponentially, and most importantly; they create value that compounds over time.

Let’s put it into a simple, real life scenario: You buy a small business. Maybe it’s a local laundromat, or a small gym, or even a coffee shop. Your upfront investment is low. The returns? Much higher than any rental property will ever give you.

The kicker? Unlike a rental property that needs ongoing repairs, tenants to deal with, and countless fees, a business can be optimised. You can introduce new services, increase efficiency, or scale operations faster.

That is capital efficiency right there.

That’s a wrap!

Let me know what you think about this weeks copy ⬇️ 

See you next week

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