It seems like a lot of people who invest in real estate end up really wealthy. I wouldn’t mind being a little bit richer myself, so I’ve been thinking that, someday, I should really figure out how to get my hands on some real estate. Experts, what can you tell me about owning and investing in real estate? Is it safe? Is it as profitable as it seems? And how can a typical person get involved in the real estate market without having to invest millions and millions of dollars in it?
Real estate has been a valuable asset to own for virtually all of human history. After all, we human beings need spaces to live, work, and play, and those needs aren’t going to go away anytime soon. Now, this doesn’t mean that real estate investments have no risks -- far from it. It’s always possible that a given property will decline in value due to factors like its location, condition, and fluctuations in demand. But the real estate market as a whole tends to go up over time, which isn’t surprising: there’s only so much land around, and we keep making more of us!
Because real estate is valuable, we’re willing to pay in order to have a place to live. In many cases, this takes the form of rent: you pay a certain amount of money in exchange for the right to live in a place. But as you acquire more wealth, you may find that it makes sense to buy your own property. Instead of paying rent, you will then most likely pay a mortgage.
Though you’re still paying regularly, you’re getting something in exchange for your mortgage that you wouldn’t get from rent (the ownership of the home, of course). Plus, you may someday finish paying your mortgage and own the home free and clear. While you own the home, the property could also increase in value. All of these factors form part of why, according to the conventional wisdom, it’s often better to buy than to rent. Buying a home is the most common way for regular folks to make a real estate investment.
Buying a home is an investment, but it’s mostly about making a sound financial decision while maintaining a comfortable life. If you’re looking for ways to invest in real estate that are primarily about building wealth, one of the most direct methods is to buy an income property. Income properties are, as the name suggests, real estate properties that create income -- commonly through rent payments from tenants. Landlords will need tools and resources like free tenant screening, legal services, and landlord insurance policies in order to do this safely, but the results can be great.
If that sounds a little too involved for you, you can still invest in the real estate market through investment vehicles. You could buy stock in real estate companies, or you could look for mutual funds and exchange-traded funds that own or track the value of real estate properties. By using investment vehicles, you can invest in real estate without having to put all your eggs in one basket. Plus, you can get into the market at lower price points, instead of having to wait until you can afford to buy a whole property.
Real estate investment can be very lucrative indeed. Just make sure that your investments are diversified and that your strategy is sound -- a financial advisor can help you there. Good luck!