Billionaire Andrew Carnegie once said that 90% of millionaires grew their wealth through real estate investments—a fact that still holds true today.
Investing is not just about building wealth—It’s also about securing a lifestyle. Whether your goal is to solidify your retirement fund or generate enough passive income to never have to work again, real estate investing can help with both. And residential real estate is a great place to get your start.
Gain an overview of real estate investing and discover the benefits of investing in residential real estate in this guide.
Residential Real Estate Investing Explained
Real estate investing comprises three major categories: residential, commercial, and industrial. Residential is what most people think of when they hear the words “real estate,” and it includes a wide variety of housing types, such as single-family homes, condos, and apartment buildings.
Commercial and industrial real estate covers business properties, such as offices, storage facilities, warehouses, and storefronts.
Investing in residential real estate is often the easiest place for beginners to start.
People invest in residential real estate in the following ways:
- Buying REITs (Real Estate Investment Trusts): This investment option involves investing in a company that owns and typically operates income-producing real estate.
- Owning a rental property: This is how most people get involved in real estate and it can provide an excellent way to earn passive income. The process is simple. You buy a property, set the rent higher than the mortgage, and earn a profit from your tenants.
- Flipping houses: Flipping a house requires buying property, making repairs and renovations to increase the property value, and collecting a profit when you sell.
- Crowdfunding real estate: This involves loaning buyers money to cover the cost of their real estate project. This is similar to the idea of REITs but requires greater risk.
- Real estate syndication: In the real estate syndication process, multiple investors pool money together. This is a way to take advantage of a large-scale investment opportunity without funding the entire purchase on your own.
The Main Benefits of Real Estate Investing
Investing in real estate has several key advantages, though they differ slightly depending on which investing route you choose.
1. Diversified Risk
Every investment comes with a level of risk. Real estate investing if executed correctly, can be a great way to diversify, especially if you invest with a long-term strategy in mind. If you do your research and you buy a home in the correct location, you will have an asset that is likely to appreciate in value throughout the years.
2. Portfolio Diversity
A good rule of thumb with investing is to diversify your portfolio. This way, if one investment fails, you can weather the loss using the profits from your other investments. Diversifying is a key step in lowering your risk and building long-term success.
Real estate is an ideal way to diversify. If the stock market dips and your stock investments take a loss, you have your tangible assets to look to for appreciation, rent, tax benefits, and other income streams.
3. Steady and/or Passive Income
Turning a property into a rental is an effective way to generate a consistent monthly income. Of course, this involves risk, as tenants may skip payments or cause costly property damage, but you can mitigate this with some strategic budgeting and careful vetting.
Real estate also has potential as a passive income stream. By outsourcing the management of the rental property(s) to an agency, you hand over the hard work of finding renters, processing background checks, collecting rent, and managing repairs to an outsourced team to handle it for you.
House flipping can work in much the same way. You can outsource all the work by paying contractors to manage your renovations.
4. Tax Breaks
One of the main benefits of real estate investing is the tax breaks. You can write off property tax, mortgage fees, insurance, legal fees, maintenance and repair expenses, leasing and management fees, and any other operating costs.
Additionally, the profit you make from selling a property is taxed differently than normal income, which will allow you to pocket even more of the profit.
5. Long-Term Returns
The most important part of an investment is the return (i.e., the profit yielded from the investment). Because the housing market ebbs and flows, you’ll gain the greatest returns by investing for the long haul. Holding a property for several decades is the optimal strategy.
Another way to secure a good return is to get a real estate license. Why? One of the benefits of having your real estate license is earning a commission while also saving on costs when you sell.
At What Age Should You Invest?
You are never too young or old to learn how to invest in real estate and get started. While it’s always best to start investing early, you can become a successful real estate investor in your mid-30s, 40s, or beyond. In fact, age may help you in some respects, as you’ll be able to rely on your network and hard-earned wisdom to help you make the right decisions. You may simply need to frame your investment strategy differently.
Learn the Next Steps for Investing in Real Estate
Real estate investing can be easy if you know which steps to take. Set yourself up for success and learn how to invest in real estate with Derek Moneyberg’s Real Estate Riches course.
This course will teach you the fundamentals while arming you with the tools you need to develop a profitable real estate investment strategy. Discover how Derek Moneyberg has helped others and get started today.