With confidence in pension funds slowly declining along millennials, we are witnessing more of the people who are currently in their 30’s shifting their money towards investing in real estate.
Why did many of them choose to build their retirement by investing in real estate instead of contributing to their 401(k)? And is this viable solution long-term?
Like in most situations when we are observing markets and whether it is profitable or not to invest your money in them, definite answer to this question simply doesn’t exist. However, there are plenty of facts that we must take into consideration and couple of proven investing strategies we might want to follow if we are thinking about investing in real estate.
First, let’s get ourselves familiar with main characteristics of real estate and how those things can reflect on their value over time.
What Do You Need to Know About Real Estate?
Looking at real estate from the investor’s perspective, we can easily conclude that this is something that will require a large amount of money to even begin with. Buying a property is not something that we do on an everyday basis. Therefore, real estate is most of the time not in someone’s portfolio for purely speculative purposes like stocks or maybe bonds.
Investing in real estate is usually a long-term commitment and many people invest their money in it for the sake of diversifying their existing portfolio.
Real estate market is much less volatile comparing to stock market for example (which is pretty straightforward as it is without need for highlighting this) but one must be aware that real estate market also shifts in value over time and that there are many parameters we will need to consider when opting for buying a specific property.
For instance, considering its position or commercial/rental potential over the years would be a good start. Obviously, you’re buying it with the intention to profit from it long-term, but you should be able to easily sell your property if something goes wrong at some point. You are much more likely to be able to sell it if it’s in a reputable neighborhood or it’s well positioned.
Is There Anything Else?
You bet there is! Drawing a line between real estate and other forms of investing opportunities (stocks, bonds, grants..) we can see that estate not only costs more initially but there are more costs associated with maintaining a property over time.
Property taxes for instance. Or paying off mortgage or line of credit if you resorted to one in order to have enough cash to buy a house in the first place. Then again, property slowly loses its value over time through depreciation. At some point, you will need to repair things inside the house – leaking roof, bad electric installation or something else.
And every landlord knows that material side of things is nothing compared to the time it took for them to get all of this working. Dealing with all sorts of workers and organizing the maintenance of the house is also really challenging and time-consuming part.
You have to account for that also!
So, Is Real Estate Worth Investing In?
Like we said at the very beginning – it depends on lots of things. How much money you have on hand, how much time are you ready to invest in this, how much patience is there…
We can most certainly say that making a real estate part of your portfolio is never a bad idea. Why? Because of its great profit potential if you bought good property. Because of it’s relatively low volatility it can be very grateful to have part of your money invested in real estate.
However, make sure to always have your emergency fund ready if you’re investing in real estate because many unforeseen circumstances may arise that will cost you money.