Should You Invest in Real Estate?

March 13, 2020

The housing market has fully recovered from the crash in 2008 in many areas. In the 50 largest metros in the U.S., median house prices have increased by almost $50,000 since 2009. Some home values now exceed their 2006 highs. Is now a great time to invest in real estate or should you be cautious? And what is the best way to invest in real estate?

Almost everyone will invest in real estate at some point in their lives, but most of them don’t think of it as investing. Home ownership is the most popular way to invest in real estate. Owning a home is part of the American dream and is seen by many as a primary indicator of financial success. The home ownership rate in the U.S. is 64%, which means owning a home is much more popular than renting. Owning your residence isn’t for everyone, though, and it isn’t the only way to invest in the real estate market.

When you should consider buying a house

If you aren’t planning to be in an area for a longer period of time (5+ years), you may not want to buy a house. The real estate market can be volatile, which means if you think you’ll be selling your house not too long after buying it, the risk that you’ll lose money on your house is much higher. The rule of thumb for home buying is 20% down; this gives you a buffer zone so if the value of your home drops, you have a better chance of not owing more on your home than it’s worth. If you end up underwater on your home, it may be impossible for you to move without taking a big financial hit.

If or when you buy a house, make sure you’re doing it for the right reasons. Renting has benefits as well; you aren’t locked in to one property and can move whenever your lease is up, you normally aren’t responsible for much of the maintenance and upkeep on the property, and you don’t have any equity tied up in a house.

Of course, buying a home means you don’t have to worry about a landlord, and the primary financial benefit to owning a home is the equity that you build in the property. Renters aren’t “throwing their money away,” as some people say, but their rent payments aren’t building any equity. When you own a home, you don’t have to worry about ownership of your building changing, increases in rent, and you have much more control over your living space.

Different ways to invest in real estate

Despite what you see on YouTube, buying rental properties isn’t the only way to invest in real estate. Buying a home can be considered an investment in real estate, but you probably don’t buy a home just because you might get a good return on your investment. You can also invest in real estate without owning any property through your portfolio, in REITs. All forms of real estate investing can be put into two categories, passive and active.

Active investments

Any investment that requires some amount of work is an active investment to a certain degree (although it still may be considered a passive investment by the IRS). The more traditional form of investing in real estate, and probably the type you hear the most about online, is buying property and renting it out. Owning a rental property can be very profitable and a good investment, but there is a learning curve; you’ve got to know what you’re doing, and you need to enjoy it to be able to do it long-term.

Private real estate deals can offer a more passive form of investing in real estate, but there still is an active component and some amount of work involved. There’s a good deal of research involved in making sure you’re getting into the right investment, and you may not be able to easily find information about your potential investment.

Passive investments

The most passive form of real estate is investing in funds with real estate holdings. A real estate investment trust, or REIT, is a company that owns, operates, or finances properties. REITs can give you a taste of real estate investing without the work of owning property.

Our latest show is all about real estate; we cover six different ways to invest in real estate and highlight the negatives and the positives of real estate investing. Learn more about how to get started in real estate investing by watching our latest show below.

TAGGED WITH: Investing, real estate



Most Recent Episodes

Financial Planning 101 (By Age) 2023 Edition

Throughout every decade, there are different areas of your financial life that come in and out of focus. In this episode, we'll discuss what you need to focus on by age, pitfalls to watch out for, and how to know you're doing it right. In this episode, you'll learn:...

Is the 2023 Housing Crash Around the Corner?

Housing prices skyrocketed after the pandemic to all-time highs, and mortgage rates have more than doubled since 2020. Homes are harder to purchase for more Americans, which means it’s more important than ever to make sure you are ready to buy before purchasing. In...

Watch This Before Rebalancing Your Investment Portfolio!

85% of Americans don’t rebalance their 401(k). Are they making a huge mistake? In this episode, we’ll discuss the “why” behind rebalancing, how to do it, and the data on whether or not rebalancing can increase your return. In this episode, you’ll learn: What...

Don’t Make This HUGE 401(k) Mistake!

Americans are making a HUGE mistake in their 401(k) that could cost them thousands by retirement. We’ll talk about why this is happening and how you can avoid making the same mistake in this Q&A episode! For more information on how to make the most out of every...

Alex Hormozi’s Top Money Advice! (Financial Advisors React)

In this episode, we react to Alex Hormozi's financial advice. Enjoy the Show? Sign up for the Financial Order of Operation (FOO) Online Course! Sign up for our Know Your Number Course! Check out our Net Worth Tool! Get FREE downloads full of financial advice from...

Everything You Need to Know About Finances in Your 20s

In this episode, we discuss everything you need to know about finances in your twenties. In this episode, you’ll learn: The top financial advice for your twenties How to start building wealth and the steps you should take Enjoy the Show? Sign up for the Financial...

The Most Valuable Asset in Building Wealth!

This episode will show you how to maximize the most valuable resource you have - starting right at this moment. What is it, you may ask? It’s TIME. If you give your money time to grow, you’ll be amazed at how much your dollars can become - it’s incredible! How wild is...

Financial Hacks and Habits of the Top 1% (By Age)

Who wouldn’t want to have a high enough income and net worth to be considered part of the top 1%? In this episode, we’ll tell you exactly how much you need to be considered part of the top 1% and the habits and hacks those in the top 1% used to get there.   In this...