Should I invest in real estate?

By Kevin Pluchar

Last time we left off with the question,
“should I invest in real estate?”

Personally, I can’t think of many reasons not to. While it does take a considerable amount of effort, the pros far outweigh the cons. Let’s take a look at some of the pros first…

If you own a home, you benefit from the tax code that allows numerous deductions. If you owned a home over the last few years, you likely saw historic appreciation on your property. If you chose to own a property as a rental investment, you can benefit from tenants and guests covering the cost of the mortgage and upkeep, with extra cash flow left over each month to reinvest or put towards other goals. 

If you are handy, you can buy a fixer upper and use your skills to put some time and money into the house and create what is called “forced equity”, increasing the value of your property by more than what you invested into it. Savvy investors can even bring that renovated home back to the bank and get a cash out refinance for, on average, around 80% of the home's value, to then be reinvested into the next property, tax free! More on that another time.

This is not to say there are no benefits to renting or investing your money in a more traditional manner such as the stock market.

Renting gives you minimal responsibility for the upkeep of the building, no large down payment to save for, and more freedom to move to a new home with minimal paperwork and red tape, but it comes at a cost. Renters do not receive the same tax benefits, pay down someone else's mortgage, and do not gain anything from the appreciation of the property in any way.

Investing in the stock market can give you steady growth over a long period of time and can be as passive as you want it to be, but comes with the risk of having no control over the outcome of your investment and is subject to extreme market volatility in the short term.

Investing in real estate gives you an asset that, if done right, can provide monthly income, tax benefits, and appreciation that will be the foundation of your financial future. Investing in real estate is also a commitment of both time and effort, necessitating a thoughtful approach, and a willingness to learn through experiences. 

As with any investment, there are potential risks associated with real estate. Markets can turn, demand can slow, rates can rise, renovations can be more than you bargained for, etc.  As we talk about different strategies, we will discuss the most common pitfalls and challenges to be mindful of as you branch out with your investing.

Please note that this article does not constitute investment advice - reach out to an appropriate professional for advice about your particular situation.