Is real estate a good investment?
Well, I've built my career, and much of my family's future, around real estate, so I'm admittedly very biased on the topic. But let's talk about it.
First, when we discuss real estate as an investment, we typically refer to income-producing properties, such as apartments, townhomes, and multifamily units. The home you own can also be an investment, but for this discussion, we are referring only to income-producing properties. So ... is real estate a good investment? I think so, and here's why.
"Buy low, sell high" is the maxim we've all heard, but let's be honest - you're benefiting from luck as much (or more) as you are Nostradamus. That makes for a catchy slogan, but it's not always attainable. But as property values go up, as rental income comes in, as tax breaks aligned with real estate properties come into play ... all of that helps to grow wealth slowly and (generally) steadily. Beyond that, though, I think real estate is an excellent investment for other reasons:
- People need a place to live. In places like the NRV, where demand is supported by a solid job market, high-quality education, and a comfortable lifestyle, that usually shows up as long-term price and rent growth.
- You can force appreciation. "Force appreciation?", you ask? With an investment property, you can make improvements to its condition or features, or add square footage. Sometimes, that's as simple as bringing rents up to market levels.
- Leverage. Let's say you own a $100,000 condo. You might have purchased it with 20% down, so you control the full $100,000, but you've leveraged by using $20,000. As the value of that condo grows, your whole asset grows, not just your down payment.
- Taxes. While I'm sure we all love the IRS, they have made it advantageous to own real estate as an investment. Whether it's things like depreciation, mortgage interest deductions, or improvement write-offs, a lot of options are available to you as an owner. Talk to your CPA.
And there are lots of other reasons, too. But real estate isn't all roses. While I've never received a call at 2 am from a tenant to report that a toilet isn't working (that's always one of the negatives you hear), that's not to say it can't - or won't - happen. That said, real estate can be a bad investment when you're overextended or have no reserves; that last one's pretty common. Another place people often go wrong is by underestimating things such as the cost of repairs, vacancies, or simply overpaying from the start.
Real estate investing isn't truly passive, because one way or another, you're going to have to do the work. But when you look at it as a slow burn and not a get-rich-quick scheme, when you do the math and you're not having to cover a shortfall every month, and when you're honest about how involved you want to be in it, it's one of the best wealth-building tools I know.
Want to talk about it more? I'd love to.
