“Should I be a real estate investor?” Periodically I get asked that question. Lately, there seems to be an increase in commercials and advertising about “get rich quick” or “no work required” or “we do it all done for you”, directed at those seeking to be a real estate investor. As a real estate investor, myself, I can tell you that real estate investing is hard work.
When I am asked, “Should I be a real estate investor?”, I believe most of them are really asking, “Should I invest in real estate?” Well... do this... figure out your current rate of return you are receiving on your savings or 401(k).
Most banks are paying about 1% a year on savings. Use the rule of 72 to determine how many years it will take for your money to double based upon your current rate of return. Divide your annual rate of return into 72. For example, if you are receiving 1% a year on savings, it will take 72 years for your money to double. Will you live that long?
If your 401(k) is paying you 3% a year, it will take 24 years for your money to double. If your real estate investment is providing you a 10 to 12% annual return, it will take 6 to 7.2 years for your money to double. I think I will live that long.
In my opinion and from personal experience, to be a “real estate investor” connotes full time work meeting and talking with people. You must have real estate management, and financial skills, while you work with multiple properties.
On the other hand, you can “invest in real estate” without all the headaches of being a full time real estate investor. (Yes, there can be headaches. Guess how I know?) If you don't have property management skills, you can contract with property management companies until you develop these skills.
The goals of “investing in real estate” versus a “real estate investor” can be different in terms of location of property, type of property, i.e., residential, land, farm or commercial, number of properties to be bought, value, etc., but the long term goal is the same, that is, to make money via appreciation and other write offs.
While these two terms, real estate investor and investor in real estate, are used interchangeably, for simplicity of this article, anyone who has invested and manages 3 or more properties themselves, I call a real estate investor. Others have just invested in real estate.
So, when I look at the return most banks are now paying on savings or the volatility of the stock market, my answer is yes, you should invest in real estate.
Very few people are financially able to buy multiple properties in a short period of time. There are ways it can be done with little or no money down, but it takes knowledge, skill and time to learn these techniques.
Just don’t be sucked in by some of these real estate gurus that are more interested in taking your money than seeing you succeed in real estate investing. I’d be glad to send you a paper about what to look out for before buying into some of these real estate guru programs. It was written by a real estate investor I trust from Ohio and I have been to classes with her in them, both as an instructor and as an attendee.
If you like to talk more about investing in real estate, email me at firstname.lastname@example.org and mentioned this article.