“To become financially independent, you must turn part of your income into capital; turn capital into enterprise; turn enterprise into profit; turn profit into investment; and turn investment into financial independence.”
Rental real estate investments are potentially the most lucrative alternative investment option out there.
However, investing in rental real estate is not a get-rich-quick scheme. It’s part of a long-term game, so the sooner you start, the better. That means even before the kids move out!
Rental real estate includes apartment complex, office buildings, storage facilities, shopping centers, etc.
For individuals just starting out in rental real estate, you might begin with a single-family home. After, you can work your way up to larger spaces like a retail store, warehouse, multi-family homes, or even self storage facilities.
Rental real estate investments have many pros and just a handful of cons.
In Favor of Rental Real Estate
1. Cash Flow
Rental properties promise a continuous stream of passive income, if you manage them properly (or have the proper management in place). Receiving a monthly stream of income from a property is one of the many reasons to love rental real estate.
Buying to sell and make a quick buck isn’t always your most profitable option.
If you enhance your property or simply maintain it and keep it in good condition, the value will likely go up. When you’re ready to sell, the money you earn in addition to your original investment is called appreciation.
3. More Stability
Compared to the stock markets, real estate investments are typically more stable and promise consistent cash flow.
While investing in stocks can be exciting, having a monthly income from your rental properties is more reliable. This is a great option for people who want their money to do the work, with less stress.
At some point, after the kids do finally move out, you need to have a plan for stable cash flow in place.
Let’s be real: after working your whole life, do you really want to negotiate the tumultuous waves of the stock market? Wouldn’t it be better to invest in an option that still produces cash flow, but also gives you peace of mind?
4. Tax Breaks
Real estate owners get an annual deduction for depreciation. This is a portion of the property value that can be written off as a revenue expense.
Also, some real estate investments such as historical buildings or low-income houses may be eligible for tax credits. A tax credit is taken from the taxes you owe, kind of like a “discount.”
Using OPM (other people’s money) can help you accelerate your returns. For example, what if you could borrow 80% of a rental property at 5%, and wind up with double digit returns? How is that possible?
Listen, a bank isn’t going to lend you that kind of dough to play around in the stock markets. But for real estate investments, your options are more viable.
When it comes to rental real estate investments, leverage is HUGE.
6. “Insider Information”
Having a network of colleagues who invest in real estate is a great source of knowledge and information.
A community of like-minded investors is your ticket to success. This way, you can work together to find great opportunities, pool resources, find great connections, and make possible deals that you simply can not achieve alone.
There are so many opportunities; but no one’s going to do the work for you. You have to do your homework and due diligence to make decisions that work for your investment objectives.
We’re here to help.
A Few Things to Consider
Naturally, there are also a few drawbacks:
1. Not Liquid
Real estate investments require a more complex exit strategy. You can’t put a duplex on the market and expect to have everything over and done with within a few days. If you need to sell quickly, real estate assets are harder to liquidate.
However, having some knowledge in making those financial decisions, or at least knowing someone who does, will help you here. That’s where we come in! We’re here to help.
Real estate investments have a lot of moving parts: agents, appraisals, inspections, offers, financing, etc. Real estate investors must be patient and dedicated to seeing the process through.
The good news is, having both a property manager and a network of financial-minded friends (like ours) will make these parts move like clock-work.
3. Management Difficulties
Properties require daily maintenance and upkeep. Owners must be prepared to deal with unsuitable tenants, unexpected repairs or even natural disasters.
Fortunately, once you dip your toe into the rental property flow of cash, you can get enough momentum to pay a management group to handle repairs, etc.
However, if just starting out, consider a smaller property so you can learn the process and responsibilities before taking on bigger projects.
Like the sound of real estate investments? Check out our success story at the Cottonwood Office Park.
When you’re ready to seek financial freedom, we’re here for you.