There’s no denying it: 2021 was a wild ride for the real estate market.
Largely a result of the pandemic, many Americans found themselves spending more time at home than ever before and, consequently, reevaluating just what it is they want from their housing situation. No matter what your specific situation was like, the chances are high that all of your time spent at home forced you to discover a whole new perspective about your little abode. Remote employees found they wanted more space for a home office. Families with kids wanted more space and an updated backyard or basement for play. Less dining out meant more cooking at home and therefore, a greater desire to have that pristine Pinterest-worthy kitchen with all of the bells and whistles.
It’s true! Real estate has really had a moment over these last 18 months, and the real estate investing space has piqued the interest of many who are looking to diversify their investments.
As it turns out, investing in real estate goes beyond just the purchase of your own personal property. Real estate investing can take many forms including REITS (aka: Real Estate Investment Trusts), Rental Properties, Fixer Uppers, and Building equity in a personal property. *Not sure what these are? Learn more here!
So…what are all of these options and why would someone want to consider them?
We’re glad you asked!
Real estate is particularly appealing as an investment for several key reasons:
It is a great way to diversify your investment portfolio
If you’ve followed along with SavviHer for awhile, you know just how important it is to make sure your investments are diversified. Said another way: it is always wise to make sure you spread out your investments so that you’re not “all in” or overly exposed to any one particular company, industry, geographic area, or investment type.
Why? Because life happens. The stock market can be unpredictable and one negative headline or earnings period can cause an investment’s value to plummet. This is why financial professionals strongly encourage investors to diversify their investments and invest according to their overall comfort level and tolerance for risk.
Why is real estate beneficial then? Interestingly enough, the real estate market does not always correspond with the exact movements of the greater stock market. Therefore, investing in real estate can potentially be less volatile overall.
It can potentially serve as a way to increase cash flow
If you are a landlord or own a few rental properties, you may be able to benefit from a steady stream of income as tenants or renters make payments. Of course, typically these payments are used to cover the expenses of property ownership, including paying the mortgage, covering home maintenance, taxes, insurance, etc., but any leftover funds can serve as a nice means of passive income.
You can build equity over time
Many investors value real estate as a long-term investment because over time (as the cost of living increases), property values also tend to increase. This allows homeowners and property owners to build equity and grow their investment via capital appreciation. This past year has been no exception. In fact, the average homeowner gained approximately $56,700 in equity during the past year (according to CoreLogic, Homeowner Equity Insights).
There are some helpful tax benefits
Though the tax code can always change, the current tax code includes many deductions and benefits that favor owning real estate property. Some of the expenses you can currently deduct from your taxes include mortgage interest, depreciation, and property taxes.
However, as is the case with any investment, there are always some potential drawbacks to consider. Before going all in on the real estate investing game, be sure to consider the following:
It can be time intensive and expensive
As any homeowner knows, there are ALWAYS things to fix, tweak, repair, update, and maintain….and these activities can add up! Therefore, many real estate properties are full of projects that tend to be time intensive. For those with limited free time, real estate can be a demanding “hobby”.
Being a landlord can be difficult
If you’ve ever rented an apartment or home, then you know just how many things can go “wrong”. As a landlord, you’re responsible for fixing any issues in a timely manner which can be financially and mentally exhausting. You also would be responsible for collecting any late fees, finding property managers, and/or managing the lease/rental process. Yes, the potential for passive income can make being a landlord incredibly appealing, but keep in mind that the potential for conflict and “issues” is also there.
You can’t always liquidate your money very easily
In many cases, investing in real estate is for the “long-term”, but there are times when life changes and you may want to sell or exit your investment property. Unlike selling a stock (which can be done in an orderly manner at most points during the week), selling a property takes time and can be quite involved. Therefore, it is not always easy to readily convert your investment to cash.
Things happen
Economic cycles happen. Popular trends fade. Favorite shopping centers or restaurants can close. School districts can be rezoned. The common thread here? Things can and will CHANGE. Therefore, before buying your real estate property, it is important to not only do your research on your target area, but to also consider various strategies should circumstances change.
As you can see, there are many pros and cons to evaluate when considering making an investment in real estate. However, this type of due diligence should always be taken whenever you look to invest or make a financial decision.
The bottom line (in our opinion): real estate can be a wonderful way to generate passive income, build equity, and diversify your investment portfolio. If you’ve been considering adding a bit of real estate exposure to your investment portfolio, be sure to learn about the various different types of real estate options in our article here or reach out to the School of Whales team to learn how you can get started today!
This post is sponsored by School of Whales as part of our February Financial Mindfulness Month. We’d like to thank them for their partnership and dedication to helping educate and empower women to own their financial futures. The content provided is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice, for information of the offering please visit https://www.sec.gov/Archives/edgar/data/1760097/000110465921074919/tm2118147d1_partiiandiii.htm. There are risks associated with investing including risk of loss. The content provided does not guarantee or predict future investment performance.
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