Real estate investing is purchasing, owning, and then renting or selling real estate for profit. It has been the holy grail for getting rich for decades, so why don’t more people invest in real estate?
Not everyone invests in real estate because it requires a good credit score and a significant investment to start. Additionally, owning and managing real estate involves many other skills most people don’t possess. In some markets, real estate is not a good investment option altogether.
This article will explain the pros and cons of real estate investing and look at some of the top reasons people may look away from it as a viable investment option.
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
Table of Contents
Reasons Not Everyone Invests in Real Estate
Real estate can be rewarding for investors. Despite its apparent benefits and potential, a large portion of investors seems to overlook real estate as a viable option for them. Let’s talk about some of the main reasons.
Many People Fear the Risks of Real Estate Investing
Fear is probably the main reason that stops many people from taking a serious look at real estate investing. Many hear about famous real estate moguls on TV and see their impressive portfolios, creating false beliefs that most people could never afford such properties, too.
People don’t realize that many of those successful moguls started with buying small properties that many of us can afford and eventually leveled up to own a handful of luxurious estates.
There’s a Steep Learning Curve to Real Estate Investing
The life of a real estate investor may seem easy on the top. To get there, however, one must pass a pretty steep learning curve.
Finding good deals isn’t easy, and managing the estates you purchase is none better.
It can be hard to figure out what you should do to succeed in real estate investing when you’re new. You’ll have to learn how to find properties to buy and sell, manage them, and find the right people to hire to manage certain aspects of your business.
Real Estate Investing Isn’t Passive
The fact that many people associate owning real estate with a passive income stream is perhaps the biggest misconception about this investment.
In actuality, real estate requires a very hands-on approach, especially in the early stages.
With that said, the income can eventually become passive when you can afford to hire a team to do all of the necessary work for you, including finding properties to buy or sell, managing tenants, dealing with taxes, and other crucial activities.
Real Estate Investing Requires a High Capital
Unfortunately, it’s a fact that real estate requires quite a substantial investment that some people simply can’t afford, which prevents them from ever getting into this sphere. You can indeed get creative with how you fund your first property, but even that will require a decent chunk of money.
Investing in real estate will be challenging for people with these low credit scores and a lot of debt. Those with a lack of capital may find it impossible to purchase their first property.
Some Investors Prefer Other Investment Vehicles
A valid reason why some people choose not to invest in real estate is that they prefer other investments, such as stocks, bonds, crypto, and others.
The time and knowledge required to become successful with real estate may be too much for some investors who are focused on their careers, so they choose to put their money elsewhere.
Even people who have all the time in the world may choose to spend it somewhere else, so they opt for other investments that won’t take up much of it but still bring a decent return.
Real Estate Is a Great Investment
Many millionaires have made their fortune directly through investing in real estate, and they agree that it’s effective for long-term wealth generation. What exactly makes real estate such an excellent investment?
Purchasing real estate is very safe, as it tends to appreciate over time. This means the value of the property and its rent payments will increase. The appreciation rate in the US for 2021 is 14.5%, the highest it has been in years and over 10% higher than it was 2 years earlier.
Additionally, investors can force appreciation of the properties they own by renovating or fixing some known flaws. Even minor fixes can significantly increase the value of a property.
Tax Benefits of Real Estate Investing
Tax benefits are a potential benefit to real estate investing. You should know that you’ll probably need expert advice to utilize tax benefits for your properties fully. For example, if you pay capital gains tax that’s usually lower than your regular income tax when you sell a property.
Investing in Qualified Opportunity Zones also brings lucrative tax benefits.
Reliable Cash Flow
Real estate investing provides a reliable cash flow. Depending on the size of your properties, you can even live off strictly from the income you receive from tenants. Keep in mind that the income won’t be passive unless you hire someone to manage your properties and tenants.
Real Estate Investing Is Flexible
Real estate investing is also very flexible. It allows you to do the following:
- Buy an undervalued property, fix it up, then sell it.
- Buy a property and rent it out.
- Buy a multi-unit property, live in one unit while you rent out the rest.
- Put money into a Real Estate Investment Trust.
Is It Better To Invest in Real Estate Than Stocks?
Investing in real estate is not necessarily better than stocks. Real estate investing appeals to many because it can provide them with a reliable income stream from renters. Stocks are also attractive because they also can give noticeable returns.
Stocks are the most popular investment people mostly go for, but that doesn’t necessarily make them a better option than other investments, including real estate.
To begin with, contrary to stocks, real estate allows you to leverage your investment. For example, you can put down $10,000 and purchase a property that’s worth $150,000. On the other hand, if you have $10,000 to invest, you can only buy $10,000 worth of stocks.
However, real estate requires a much higher initial investment, whereas you can start investing in stocks with as little money as you have.
Furthermore, real estate is more challenging to manage.
Whichever investment type you choose, it all depends on the type of investor you are. Both of these investment types can be rewarding.
Should You Invest in Real Estate?
You should invest in real estate if you have the capital for it. Most importantly, you must be interested in it and be willing to put effort into it, especially when you’re just starting. Note that, like any other investment, real estate has risks, too, and you could lose money.
This means you shouldn’t jump straight in. Instead, do some research and familiarize yourself with the real estate market in your area first before making any long-term commitments.
Generally speaking, investing in an apartment complex is a better option than buying a house. If your budget is too low, you can start by buying undervalued properties, doing some renovation work, and then selling them off for a profit.
Here’s a simplified process you can follow when starting:
- Gather cash and look at financing options.
- Start with investing in a REIT or RE mutual fund to get more familiar with the space.
- Purchase your first property.
- Network with other real estate investors.
- Never stop learning.
- Keep building your real estate portfolio.
Author’s Recommendations: Top Trading and Investment Resources To Consider
Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.
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- Best Broker For Trading Success: I reviewed 15+ brokers and discussed my findings with 50+ consistently profitable traders. Post all that assessment, the best all round broker that our collective minds picked was M1 Finance. If you are looking to open a brokerage account, choose M1 Finance. You just cannot go wrong with it! Click Here To Sign Up for M1 Finance Today!
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Conclusion
Real estate investing is one of the best ways to build generational wealth.
Its value greatly appreciates over time and provides some tax benefits and a reliable income from tenants. It is also very flexible as an investment vehicle.
People are reluctant to invest in real estate because of fear of the unknown, and they may lack knowledge about how real estate works. Some people may simply lack the funds necessary to invest.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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