Investing in Real Estate: Advantages & Pitfalls

Investing in Real Estate is a proven method of building wealth with an attractive risk vs reward profile. That advantages include: 

• Real Estate is traditionally a stable investment
• Great investment for long term value and returns
• Monthly rental income plus an increase in home value
• Can typically rent for more than your mortgage payment
• Take the difference and either pay down your mortgage faster or accumulate for another down payment
• You can use financing to maximize your “Cash on Cash” return

Why Real Estate may be more attractive as an investment:

• The historical low rates (near zero for many corporations) has led to an unprecedented surge in corporate debt. The US corporate debt is above 45% of GDP, a historical precursor to a recession.  Much of the debt was used to buy back stock, which pushed stock values higher.
• Interest rates are increasing, creating pressure on corporations to deleverage.
• Maybe it’s time to take some profit off the table in the stock market?

Although investing in real estate is a great way to build wealth, there are MANY pitfalls you need to be aware of:

• You never make money by selling a property. You only make money when you buy it at a below market price/cost
• Don’t think about fixing and flipping unless you are very knowledgeable on real estate values and construction costs/requirements
• Don’t get in too much debt. If you don’t have reserves to float 3 months payments and have a “contingency” fund for emergency repairs……keep saving
• Focus on long term value: positive Cash Flow, steady appreciation, automatic “savings account”
• Be aware of the requirements to manage a property. Find a property manager if you are not suited for it
• You can get financing for as little as 15% down, but it is more cost effective to have 20% down
• If you are considering moving, you may want to consider keeping your current house and renting it out, if possible. Potentially keep a lower interest rate/payment, get better terms on primary residence financing, even with a lower down payment.