A lot of people ask me what my feeling are about investing in physical real estate as an investment and im not the largest fan in general. The thing about real estate is it might work for some people and might not work for others. There are a ton of factors that could end up losing you money and I want to talk a bit about what they are. This is just a general rule of thumb and not advice for people who might be specialized in a certain field that works well with owning physical real estate.
When I am talking about real estate as an investment, I am not talking about owning your primary residence, for the most part I think thats a good idea. I am talking about owning other rental properties outside of your primary residence. Being a real estate developer is also a bit different because if you do it for a living you usually have a comparative advantage over other people. The biggest problem is there is a learning curve to owning real estate for the regular person. If you just start owning real estate, you could essentially lose out on efficiency because you arent optimizing ways to make money.
For example, if you have to hire people to take care of the property, if you purchased a home in an area with high taxes or the home itself needs to have something major replaced, these are all types of things the average person wouldnt know about. If you are a skilled trade worker for a living, an electrician, carpenter, ect. , you are going to be able to assess situations much better and fix things that might cost a large amount for other people. If you arent a handy person I would never recommend owning multiple homes as an investment.For the most part the housing market just keeps value in line with inflation, most people dont see their houses outpace inflation and in many cases they actually see the value of their homes go down because of the deterioration of the neighborhood.
This is another major reason im not the hugest fan of physical real estate, most people cant own more than one or two homes, which are usually in the same area so your risk is not diversified. If you owned a reit or a reit etf you are literally spreading your risk amongst thousands of properties rather than one or two, including the potential of industrial, retail or commercial spaces you wouldnt be able to afford otherwise.The growth of owning a reit versus your own property might not be as lucrative, but you also dont have to do any work and can focus on other things.Owning your own property is a huge commitment and as a landlord you have a ton of responsibilities. Plus you can let someone who already has the knowledge from working in the industry, continue to make you profit.
Real estate is also a very long term investment which makes it risky to maket movements. Many people with investment properties in 08-09 had to sell them because they couldnt pay the mortgage, or they straight up lost them to the bank. When you need to pay immediate debt, you cant afford to wait things out, like you could in the stock market. I think everyone's case is special but for the average person who knows not much about real estate and doesnt have the skills needed to maintain a house , I would steer them away from physical real estate as an investment. If you happen to live in an area that has low or zero property tax, things might be different as well. Each case has to be evaluated on a case to case basis.
-Calaber24p