Over the past few years, I have invested in a variety of opportunities, and rental real estate has become one of my favorite investments. Specifically, I purchase, rehab and lease single family homes. The following four reasons explain why I invest in this area.
1) Real Estate does not promise overnight success. Late night tv advertisements not withstanding, real estate rarely offers quick returns. It may sound odd to you that I list this as a positive reason to invest in real estate. I have learned that many times, the investments offering the ‘hockey stick’ shaped growth in sales and profits carry with them a high chance of failure. There is a wisdom in slow and steady growth.
The slow buildup of equity and the cumulative appreciation of value associated with real estate remind me of the Proverb that states:
Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.
2) Rental real estate generates a positive monthly cash flow. In this day of almost zero percent interest on cash investments, it is quite satisfying to collect a monthly paycheck from each of my rental properties. Some of the other investments that I have made have no hint of ongoing cash flow or dividends and shift all of the potential returns to a future cash-out event like the sale of a company. Sometimes, those other opportunities pay handsomely, and sometimes they don’t. The steady cash flow of rental homes allows me to generate income today and build value for the future.
3) Real Estate is an investment that I can control. Unlike most other investments like stocks, bonds and mutual funds (which I have no control over), I can have a significant amount of control over my real estate investments. I can choose the neighborhoods that I wish to invest in. I determine what improvements are made to the property. I decide how to market the property to potential renters, and, perhaps most importantly, I can establish effective tenant screening procedures.
4) Rental real estate is not highly correlated with other investments, like the stock market. This means that the returns on real estate do not fluctuate with the financial markets. Have you ever worried about the balance of your brokerage or mutual fund accounts because of the volatility of your investments? I have found real estate to offer more stable returns. The principle of diversification is important, and rental real estate offers a tried and true opportunity to increase the diversity of your investments.
Well, there’s the top four reasons that I invest in rental real estate. I should remind you that this post reflects only my opinion. Your situation is different and your outcomes may differ from mine. Any type of investment, including real estate, can be risky. In other words, as the EPA says, “Your mileage may vary”. That being said, the merits of real estate are worthy of your careful consideration.
Do you invest in real estate? If so, what are your reasons for doing so?