Weighing the Pros and Cons of Passive Real Estate Income

In this video, the advisors discuss the pros and cons of investing in real estate alongside a regular day job. The pros include depreciation schedules, steady cash inflows, potential appreciation in property value, and the satisfaction of ownership. On the other hand, the cons involve the time, maintenance, and upkeep required, the lack of liquidity, variable income, and the potential for unexpected challenges in property management. They highlight that real estate investment is not a one-size-fits-all solution and emphasize the importance of considering factors beyond financial returns, such as time commitment and peace of mind.

Video Transcript

In this video we’re going to talk about the pros and cons of investing in real estate on the side of a regular day job. Ben, let’s first start with the pros. Yeah, so really kind of hot button issue is something that we see a lot with our clients that want to diversify inside their portfolio and also inside their investments and really get into the real estate market.

Really some of the pros behind that are, number one, there are some depreciation schedules, so depending on if it’s a residential building or a commercial building, you’re able to offset some of your real estate income. A lot of people are really attracted to real estate because of the steady cash inflows, so if you’re looking to rent out a building, you can count on monthly rent coming in every month.

Typically, homes do appreciate in value over time. You could buy it in an area and have it completely skyrocketed, so we’ve seen that before. And there’s also a feel -good aspect of actually having ownership, something that you don’t necessarily receive a statement of every month.

Ben, thanks for walking us through the pros of real estate. Now let’s talk about some of the negative of the con. What are some of the hidden negatives that come along with using real estate as a wealth building tool? Yeah, I think one of the major things that a lot of people don’t think about when they want to get invested in real estate is how much time and maintenance and upkeep to keeping up with the property actually is.

So particularly this could involve hiring a property manager, this could involve quitting your job and diving into real estate full -time. Really those are the times that we’ve seen this actually go well is the more time that you’re committed to actually seeing this through and really the less hands -on you are, so the more you’re able to delegate to a property manager or other people on your team to help deal with issues that come up with the property.

Another big issue that we oftentimes see with real estate is that it’s not liquid, so if you needed money now, oftentimes someone’s net worth can be a certain number, but if they needed access to money now, sometimes maybe it doesn’t make sense to sell off a property or you maybe would be potentially even underwater if you were to sell a property because you needed money.

And then also income can be variable. So while it’s also a pro, it’s also a con. You could own a building in an area where rents drop or you’re not able to increase rent and you’re not able to replicate the income that you were making before.

Then thank you so much for walking us through those details. In preparation for this video, we ended up surveying some EWA clients and some friends, all of which have done real estate investing on the side, some full -time, some on the side of their day jobs, and out of the results, a third of the respondents said that they would, looking back, knowing everything they know, knowing the pros, the cons, they would have done it.

They will continue to do it. And then surprisingly, two -thirds of those surveyed said they would not do it, looking back. The pay and agony of the time was too high and the equity investments over their careers were just as, if not more successful than their real estate investments.

And out of the two -thirds, a lot of those had been past investors, which had since then sold those properties off. It’s interesting to hear the perspective of both some young people, some older people, and know that this is not a one -size -fits -all. It’s not better or worse than equity investing, but it’s an important realization that it’s not just a return that needs to be factored in here.

It’s what’s your time worth, and knowing yourself, what do you value of peace of mind? Is it owning something physical that’s going to be peace of mind, or is it not having to deal with the headaches of maybe what a real estate portfolio would do if you’re managing it or even hired someone else to manage it, there’s still going to be some headaches.

So incorporating more than just a financial outlook on your real estate choices is going to be a key to success of your financial plan and happiness.

Show Full Transcript

Recommended Videos

5 Tips to Remove Stress From Your Finances - Tip 3- Establish Your Top 5 Values for Decision Making
What You Need to Know About Spousal Lifetime Access Trusts (SLATs)
Common Misconceptions About Bonds
Should You Invest in Non-US Stocks?
10 Mistakes That Retirees Make and How to Avoid Them: Tip 1-Underspending
5 Tips to Run Your Business Stress Free- Tip 5- Elevate and Delegate