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SHOW NOTES FOR EPISODE 590: IS REAL ESTATE INVESTING FOR YOU?
In our first episode of a ten episode series entitled the 10 Steps to Real Estate Investing Success, Bill explores the question – “Is Real Estate Investing for You? In today’s podcast, he looks at the key factors each prospective investor should consider before diving into real estate and the pros and cons of real estate investing.
Introduction
Real estate can be a valuable investment that can compete with, and often outpace, the returns of the stock market. However, the value real estate can offer isn’t without risk or effort. If you’re considering becoming a real estate investor, You need to know the pros and cons of real estate investing. I’ll being given you an overview and share with you how to assess if it’s worth it for you.
Benefits of real estate investing
There isn’t one main benefit to investing in real estate, but there are several benefits that, when combined, really make this asset class a worthwhile investment. Similar to stocks, a real estate investment can appreciate, or increase in value, over time while being a source of cash flow from rental income or mortgage income.
However, unlike stocks, a real estate property is a tangible asset that can be leveraged while offering several significant tax benefits, including depreciation and tax deductions, which can also reduce capital gains.
Real estate investors rarely look at one benefit as the sole reason to invest, but rather one or more of the benefits together. It’s not uncommon for investors to achieve double-digit returns (meaning 10% or more) with an real estate investment, but, when other benefits of real estate are factored with it, the return is far greater.
Drawbacks of real estate investing
But, keep in mind, it can also have its drawbacks. Real estate investments can require a significant amount of work, particularly if you plan to buy, own, or manage a property as an active investor. There are ways to make it a more passive investment by outsourcing property management or investing in a real estate crowdfunding opportunity or real estate investment trust (REIT) — but investing in real estate still requires work.
There are also ongoing costs to owning real estate. If you own a property, properties need to be maintained, improved, and managed properly to maintain the investment. Investors are responsible for paying annual property taxes and insurance. If you own rental property, you also have the added responsibilities of working with and dealing with tenants.
Also, real estate, as with any other investment classes, isn’t immune to market fluctuations. Both the stock market and real estate are affected by economic recessions. Decreased demand, oversupply, environmental disasters, and vacancies can all negatively impact the investor’s bottomline.
Is it worth my time?
When it comes to real estate investing, there are many different factors to consider. What is involved in becoming a successful real estate investor? There are multiple answers to this question and countless answers on how best to approach real estate as an investment.
Passive vs. Active Investing
Real estate investing is not necessarily for everyone; however, I personally tend to think there is a real estate asset for everyone. To properly assess whether or not real estate investing is worth it, you should separate real estate investing into two broad categories – Passive and Active!
Passive real estate investing is like investing in stocks, bonds and mutual funds. You hopefully do your research and then, you’ll write a check (if anyone really does that any more) or, more commonly, just transfer or wire funds. Examples of passive real estate are:
- REITS
- Crowdfunding
- Syndication investing
- And possibly
- “True” Buy n’ Hold
- Notes, deeds. Leins
- Private lending
Active investing will require more of an investment of your time. Examples of active real estate investing strategies include
- Wholesaling
- Flipping
- Rental properties
- Mobile home parks
- Airbnb and short-term rentals
- Commercial property acquisition and management
So, if either active or passive is still of interest, then, what are some things that you should consider before building or growing your real estate business?
Here are a few things to consider… These factors may not apply to everyone’s situation, but we find these issues often crop up when people discuss their lack of success.
Motive
Why are you investing? The first thing you need to do is determine your motive behind investing in real estate. Are you doing it for the cash flow? Do you want a haven from inflation? Or perhaps you see a money-making opportunity that will help you achieve your personal goals and dreams. Whatever your motive is, make sure that it aligns with your overall financial goals and objectives.
Time
How much time can you commit? Every real estate business venture requires different levels of involvement, depending on how much time you have available. Some people may want to dedicate a lot of time to learning the ropes and be very active with their investments. Others would rather spend as little time as possible but still generate a good return on their investment.
Inflation
In light of inflation, what is your objective? Inflation can be deflationary or inflationary, depending on the market. Investing, generally speaking, has been a great hedge against inflation. However, property invested in today, potentially, can lose value if there is significant inflation and, if you depend on renters, it can directly impact your cash flow. When the inflation rate is high, rental income tends to lag. It is vital to prepare accordingly for expected and unexpected inflation when investing in real estate.
Market
What is the value of properties in your area? Real estate pricing can vary significantly depending on location, size, and demand. Suppose you’re considering a universal real estate investment such as raw land or apartments. In that case, it is important to conduct research to assess the history of values in the market. Are prices trending up? Is population increasing? How are jobs? Services? Growth opportunities? It’s important to do your due diligence before spending money on speculative opportunities that might not be viable investments with adequate returns.
Planning
Do you have a strategy? Real Estate Investment strategies vary based on the type of property and the market in which they exist. Some investors focus on low-risk/low-return, safer investments like apartment buildings. In contrast, others go flat out for high-risk/high return ventures such as ground-up construction projects. It’s essential to have a plan before you get started to get the best value, even if your investment changes course along the way. If you are considering a loan for your investment property, you might want to consider a reliable source that will provide you with Logbook Loans and other related Secured Emergency Loans.
Legal
What are my rights? Real Estate Investments fall under real property law, which varies from state to state and location to location. It is essential to learn the laws for commercial and residential real estate investments before you ever invest, just in case something happens later on — ignorance is not an excuse in court.
Asset Classes, Market Conditions & Capitalization Rate
What asset class are you going to invest in? Are there any new laws or legislation that might affect this asset class? How will the market condition affect you? What is your capitalization rate? These are some good questions to ask yourself before beginning with any real estate investment. Click here for some additional information on how to answer these questions. You can even do a quick google search to find some professionals willing to help you out while making the most informed decision possible– keep in mind that they work off commission, so don’t pay too much attention to what they say.
Is Real Estate Investing Worth It?
Investors often look to the stock market for growing an investment portfolio. With the S&P 500 producing a historical average return of 9% to 10%, there’s clear value to investing in stocks, index funds, or mutual funds. But those looking for diversification of their investments may wonder: Is real estate investing worth it?
Real estate can be a valuable investment that can compete with, and often outpace, the returns of the stock market. However, the value real estate can offer isn’t without risk or effort. If you’re considering becoming a real estate investor, find out whether it’s worth it.
In Conclusion
A famous quote made popular by the internet states that 90% of millionaires have been created in real estate. While this statistic has yet to be verified, it’s well known that most high-net-worth individuals attribute at least a portion of their investment portfolio to real estate. Investing in real estate can have tremendous value and be a great way to diversify a portfolio.
Whether real estate investing is worth it is ultimately up to you. However, in most cases, the benefits often outweigh the drawbacks and risks. It’s really a matter of finding the investment strategy and investment opportunity for your financial goals.
Like any other investment, Real Estate Investments have their pros and cons, as you can see. It is crucial to consider the things just mentioned before you move on to serious investments. However, it is always advised to consult with an expert before actually investing in protecting your interests no matter.
References:
- https://www.millionacres.com/real-estate-basics/investing-basics/is-real-estate-investing-worth-it/
- 460: Is Real Estate Investing for You?
- Real Estate Investing for Seniors
- 7 Reasons Why Real Estate Investing is the Best Way for Seniors to Make Money
- 028: Why Real Estate Investing is Great for Retirement
- 122: The Importance of Knowing Your Why
- If Real Estate Investing Is So Great, Why Doesn’t Everyone Do It?
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