Many people are drawn to the world of real estate investing and the dream of making passive income through rental properties. It’s an attractive prospect, as there’s certainly plenty of money to be made if purchased with considerable thought.
However, other potential investors are equally nervous about the idea of owning real estate, as the amount of work and knowledge required can seem daunting or out of reach. Influencers and reality TV shows make it seem easy — but is real estate investing right for you?
As leaders in the financial space, the members of Kiplinger Advisor Collective are familiar with what it takes to succeed in real estate, and here, they share their expertise by outlining eight signs that investing in real estate may be a good fit or the right next step for you.
You have a secure income paired with financial liquidity
“Financial liquidity and income security are paramount because real estate can be a capital-intensive business. Between down payments, repairs or renovations and future vacancies, an investor must be able to cover a variety of expenses out of pocket and typically hold their investment long term. There is nothing passive about owning your own rental property; it is work.” — Stephen Kates, Annuity.org
You're interested in property and market trends
“One sign real estate investing may be right for you is when you have a strong interest in property and market trends coupled with a long-term financial mindset. To succeed, you'll need thorough research skills, a solid financial foundation and a willingness to learn.” — Stephen Nalley, Black Briar Advisors
You're always thinking about upgrades and renovations
“If you enjoy home improvement shows and find yourself constantly imagining ways to upgrade properties, this indicates a natural interest in real estate potential. To succeed, you'll need to develop practical renovation skills or build a network of reliable contractors.” — Manoj Kumar Vandanapu
You want to diversify your portfolio
“If you are looking for ways to diversify a portfolio, investing in real estate might help you mitigate risk. Besides purchasing individual properties, there are many vehicles through which an investor can own residential or commercial property, including exchange-traded funds (ETFs) and REITs (real estate investment trusts). Your experience and knowledge are the best indicators of your investment choices.” — Deborah W. Ellis, Ellis Wealth Planning
Kiplinger Advisor Collective is the premier criteria-based professional organization for personal finance advisors, managers, and executives. Learn more >
You have zero high-interest debt and a large savings
“Real estate is a big financial commitment, so ideally the person should be free of any high-interest debt, and they should have also saved a substantial amount of money that they can safely invest into real estate. To see success, they should always be consulting with their network and financial mentors to ensure they’re utilizing all the available resources for making the most informed decisions.” — Justin Donald, Lifestyle Investor
You have the ability to make regular mortgage payments
“If you are young and do not have many assets yet, and you are making enough to make regular payments on a mortgage, buying a house or property is a form of forced savings that will increase your net worth. If it is a rental property, it will generate income for you. Aside from your ability to make payments, ask yourself if owning real estate is something you'd like to do.” — Zain Jaffer, Zain Ventures
You're looking for more stable cash flow
“One sign that real estate might be the right next step for you is when you’re looking for steady cash flow amid stock market volatility. If your 401(k) or stock portfolio is volatile, real estate can provide stability. To succeed, you need a solid emergency fund, local market knowledge and property management skills. Real estate is about running a business, not just buying property.” — Jabin Geevarghese George, Tata Consultancy Services Ltd.
You're looking for ways to reduce taxes
“Investing in real estate or real-estate-related businesses such as hotels may help reduce tax on income from other sources. Investments in real estate can generate ‘paper’ deductions, such as depreciation. This can provide a much higher overall return on investment. The rules are exacting, as you often must qualify as a real estate professional under the IRS rules for the best tax benefits.” — John Goralka, The Goralka Law Firm
