Many of the world’s richest individuals did it by owning real estate. Many of the most popular “wealthy people” have done the same thing. However, should you buy real estate, or just invest in it. Here are a few thoughts…
The Pros and Cons of Buying Actual Real Estate
When I talk about buying real estate, I mean buying an actual physical property and renting it out.
The biggest positive of doing this is control and ownership. You own the property and can do with it as you please. You also have full control over the tenants and who you rent it to, as well as what to charge.
The drawbacks of real estate ownership are that you have to deal with the property as an owner. This means mortgage, simple landlord insurance, taxes, utilities, and more. These expenses can quickly exceed the amount of rent you bring in, and also have a huge time implication as well.
The Pros and Cons of Investing in Real Estate
Owning physical real estate and renting it out is almost like a side business, because it does require a lot of involvement. And if that doesn’t sound like your thing, but you still want to get into real estate, you could always invest in real estate.
The primary way to invest in real estate is to buy a REIT, or Real Estate Investment Trust. These trusts act like shells that invest in real estate, and you get a portion of their earnings.
The advantage of investing in real estate, especially via REITs, is that the cost is lower, there is no real work required (beyond simple research), the transaction fees are much lower, and you can also be selective of what types of properties you invest in.
The biggest con of investing in a REIT is lack of control over the investments. If the manager makes a mistake, you could lose thousands, if not more, on your investment. This lack of concrete information makes investing in a REIT much different than real estate.