“Buy a fancy house, rent it out and get cash every month”
“Real estate is better because it’s ‘real’ not just some imaginary number like a stock”
Don’t be fooled by a house because it makes you feel good.
Can you get wealthy from buying a rental property?
But it is good investment choice for many. You just won’t get wealthy by buying a rental property. If you buy a rental property today, you will likely see a cash return of 5–8%. Getting this kind of cash return won’t make you wealthy. What it will do is create a mostly passive form of income from money you already have. Most of the “real estate tycoons” made a lot of money doing something else and then used the money to invest in real estate. If you are start at zero, you aren’t going to get wealthy making 5–8% cashflow.
Real estate typically underperforms against the stock market indexes.
The reason it’s attractive to some is because it provides a fairly stable cash return and isn’t susceptible to day to day stock market swings. There are also some tax advantages to owning property. That being said, it is usually a better option for someone who already has some money or is approaching retirement.
What about all the people who got rich through real estate?
They didn’t do it by buying a property, renting it, then buying another years later. This model works to slow. The money to be made is either by providing a service to others such as brokerage, property management or asset management; or by adding real value to a property by developing or renovating properties.
Today real estate is a trend in the media with so many TV shows devoted to flipping houses. Before you buy a property make sure you make some realistic projections about how the property will perform, what your cash flow will be, and what other opportunities you are foregoing by buying a rental property.