Out of all of the ways to build wealth through investing, why invest in real estate?
To start, I’ll say this: there are a lot of different ways to invest in real estate — all of them with real potential. I would argue, however, that residential real estate — especially single-family rentals — is truly one of the best real estate investments that you can make.
That’s right. Residential real estate may be better than stocks, bonds, flipping, commercial investing, or REITs.
If any lesson has been made clear during the Covid 19 pandemic, it’s that life brings us the unexpected. Over the last year-plus, we have experienced the devastation of commercial and retail real estate. We’ve seen wild stock market fluctuations and a strange war between Reddit and hedge fund short sellers — a saga that puts the true stability of the stock market into question.
With so much up in the air, residential real estate can be a safe and solid investment to make — but what does that mean, and why?
Before we get into the meat of the matter, I want to define what a “safe” investment is. With investing, there is always a balance between risk and reward. The higher your risk, the higher the reward should be. Ideally, you can recognize your risk tolerance and make decisions accordingly.
When I call an investment “safe,” I do not mean it is without risk. A safe investment for me is one that I have a reasonably high expectation of return of capital — which means that I get my initial investment back. From there, I try to maximize my return on capital — meaning that I also make money on my initial investment.
One of the reasons I love median priced, single-family homes is that I can have a reasonably high expectation of a return of my capital at almost any time in my investment horizon, which is 7-10 years. They are under-produced, in high demand, and remain a relatively safe investment.
They also meet four criteria that define a safe investment to me:
- A long…