Rewards of Real Estate Investing
Whether your only real estate transaction is buying your own home, or if you expand into real estate as part of your investment portfolio, real estate can be a rewarding and potentially fun venture.
Buying a home—and maintaining it well—is one of the surest paths to building your assets. Unless you are an avowed renter, love the carefree lifestyle, have a financial plan, and are streadily accumulating alternative investments that will finance your retirement years, you owe it to yourself and your family to become a homeowner as soon as you possibly can.
Build equity in your home and build wealth. It really is that simple. Homes appreciate over time an average of about 6% a year and provide tax advantages. Home ownership also facilitates increased net worth. Homeowners enjoy, on average, a much higher net wealth per household than those who rent. And if you own your home free of mortgage debt in later life, you will enjoy having the feeling of increased financial security. See Chapter 15, "Choosing Housing Wisely."
Real estate investments are not limited to home ownership. Purchasing real estate purely as an investment can be an ideal way to complement your investment strategy. While real estate investing does require your time and attention, it can potentially offer you good returns on your investment.
Kevin purchased his first home six years after graduating from college. He purchased a three-level, 80-year-old row house in the Bolton Hill district of Baltimore. He lived on the first floor and rented the other two levels to tenants. The rental income covered most of his mortgage, which freed up his income to invest in more real estate. Today, Kevin owns 12 rental properties, which provide him with a substantial source of income as well as an appreciating asset.
We will talk more in-depth about home ownership and direct real estate investment in the next chapter. If you are interested in investing in real estate, but don't want the hassle of managing properties, consider investing in real estate investment trusts (REITs). REITs allow you to invest in a pool of real estate assets that are managed by professional managers. Conceptually, a REIT is a mutual fund for real estate investments. However, instead of stocks and bonds, a REIT portfolio consists of income-producing properties such as apartment houses, shopping centers, office buildings, warehouses, or a combination of these properties. REITs are sold by brokers and traded on the major stock exchanges every day, making REITS the most liquid form of real estate investment you can find.