In my financial planning firm, we focus on serving clients in their 30s to their 50s — and we see firsthand how popular the idea that real estate is a way to get rich (relatively) quick is. That would be fine if real estate was a no-brainer passive-income maker the way so many people think it is. The problem is that narrative doesn’t line up with reality.
While real estate can be a good investment, that statement comes with a laundry list of caveats. All the “ifs” and “buts” that surround it mean that investing in real estate (especially with the goal of generating passive income) is more of a myth than a viable strategy for most people who simply want an easier or more exciting way to grow wealth than investing in the stock market for the long term using a diversified portfolio.
Before you join the ranks of rookie real estate “investors” who realize how much skill and luck are required just to break even — never mind actually turn a profit — consider the following realities associated with real estate investing first.
1. Managing Rental Properties Takes a Lot of Work
When people tell me they want to invest in real estate, here’s the scenario they typically envision: They receive a rent check on the first of the month, every month, which is much bigger than the mortgage payment on the property. They then use the check to pay the mortgage, cover all costs of homeownership, and then pocket the profits.
It is possible to locate, buy and manage a rental property that allows this dream scenario to come true. But it is not for everyone, and it is not nearly so passive an endeavor as many people imagine.
Unless you’re prepared to:
- Advertise to find tenants and avoid vacancies.
- Show the property to interested parties when seeking new renters, and help maintain it for current occupants.
- Vet applicants to ensure you have qualified, reliable tenants.
- Consistently update and improve the property so you can continue attracting high-paying renters.
- Respond to maintenance requests and coordinate repairs (or do them yourself) in a timely manner.
- Manage all the financial obligations, from paying bills to handling security deposits and more.
… then playing landlord might not be the ideal role for you. All of this takes serious time and effort, and this is just what you can plan for. Ask any seasoned real estate investor who manages properties with tenants about their unexpected list of duties, and they will tell you about repairs going massively over budget, evictions and entanglements with the …….