Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, like American Express, but our reporting and recommendations are always independent and objective.
- Investing in real estate is quite different from investing in the stock market, and for some people, it’s just not the right move.
- Current investors say that anyone looking for a shorter-term investment should look elsewhere — real estate can involve longer transaction times and a longer time to break even.
- For those who want to become landlords, it’s important to take the time to learn about local renters laws, how to choose the right building, and more.
- Investing in real estate also isn’t as passive an investment as you may think — oftentimes, it requires significant time and effort on your part.
- Policygenius can help you compare homeowner’s insurance policies to find the right coverage for you, at the right price »
Real estate investing can be a great way to add to your income, but it comes with costs. Not only does it take a lot of cash to get started in most circumstances, it can also be time-consuming. Oftentimes, it’s not as flexible as investing in the stock market, where buying and selling can happen easily and there’s little daily management required.
Ultimately, it takes a lot of time to manage and maintain a rental property correctly, from learning how to to find and keep good tenants to upkeeping your property for years and years. We spoke to landlords and real estate investors who each own several properties, and they identified several types of people who just aren’t the right fit for this type of investing.
1. Anyone who doesn’t want a long-term commitment
Real estate is a long-term commitment.
“If you buy stocks and you don’t like the stock in two minutes, you can click two buttons and you’re done. But with real estate, it doesn’t work that way,” says real estate investor and landlord Ogechi Igbokwe.
With real estate, it’s not as easy to turn around and sell a home. Not only can there be larger tax implications, like capital gains taxes for investors, but it’s also a longer process for a buyer who likely needs financing, inspections, and time, too. It can take years for the home’s value to appreciate enough to make up for the fees. And that’s not to mention the time it takes to find a buyer to start with.
Real estate isn’t always a quick investment — not only does it take time to increase in value, but it also takes time to actually sell the home.
2. Anyone who’s not willing to put in the time to learn
Because real estate investing is such a commitment, it takes some time to learn the ropes. “It’s not something you just dabble into; you actually need to learn,” Igbokwe says. “You either need a mentor or you can take a course.” In her experience, there’s value in learning “from someone who’s experienced, who owns properties, who has been in the game for a few years.”
And there’s also a big value in taking the time to study all the laws, regulations, and requirements around becoming a landlord. “You have to be educated and you have to understand the legalities involved,” says investor and landlord Becky Nova. For landlords, there are all sorts of local laws that can regulate everything from how you interact with renters to how much you’re allowed to raise the rent. And it’s your job to know these things in advance.
It takes time to learn these things, and it’s something anyone who wants to invest in real estate should think about before buying.
3. Anyone who only wants passive income
“I think one of the biggest misnomers about real estate investing is that it’s passive investing,” Nova says.
In her experience, it’s anything but a passive investment. It involves a lot of management, and the right skills. Working with current tenants, screening new tenants before they move in, and even buying the buildings themselves all take time — and there’s nothing passive about that.
Unlike dividends, which are obtained through stock market investing, real estate investing will require effort on your part. “You should have the extra time to manage the property and stay on top of that. Sometimes, it can be like another full-time job,” financial planner Riley Poppy of Ignite Financial Planning in Seattle previously told Business Insider.
“People think that they’re just going to get mailbox money, and real estate is not that,” Nova says.
Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.