Small business owners usually have a lot on their plates, trying to scale their enterprise, manage their employees, and maintain a grip on cash flow all at the same time. But being ambitious means always seeking new opportunities.
If you’re interested in building wealth and establishing a more secure financial future for yourself, you’ll need to consider investing in more than just your business. One of the most lucrative and reliable investment opportunities out there is real estate investing, but is it right for you?
Motivations for Real Estate Investing
These are five of the main reasons you might consider investing in real estate:
1. Personal interest. First, you might have a personal interest in real estate investing. You might come from a family of realtors and know a lot about the value of a house. You might like the idea of having multiple properties to fall back on. You might be witnessing the development of a neighborhood in your city, and want to be a part of its revival. Whatever the case, real estate investing can genuinely be enjoyable.
2. Immediate profit. In some cases, you can buy a house and resell it for an almost immediate profit. The idea is to scout the market for houses that are underpriced or undervalued, such as ones being sold by owners who are in a hurry to offload the property, then go in and make improvements to make the house look more appealing to a subsequent seller. This is sometimes known as “flipping houses,” and can also be used to develop and/or remodel homes that are borderline unlivable as is. However, you should note that this investment method is somewhat volatile, and there’s no guarantee that you’ll see a decent profit from it. If you pursue house flipping, you’ll need to have many years of experience—or the help of someone who does.
3. Rental income. A more reliable way to make money from real estate is through ongoing rental income. The idea here is to maintain the property and find tenants to live there, paying you monthly rent in exchange for the value. Ideally, you can collect more in rent than you’re paying for a mortgage, taxes, and insurance. You might only make a few hundred dollars a month above what you’re spending, but it’s a steady stream of income you can rely on (at least until your tenants leave).
4. Housing appreciation. You can also invest in real estate simply knowing that the real estate market tends to appreciate over time. In general, housing prices rise slightly faster than inflation, and if you select a good home in a neighborhood with upward mobility, your house’s value is going to rise even faster. Depending on your choices, you could sell the house in a few years to a few decades and make a serious profit.
5. Vacation home. As an entrepreneur, you can’t underestimate the power of a good vacation. Running a business is incredibly stressful, and pouring in too many hours can increase your risk of burnout. In addition to the motivations above, you may consider investing in real estate to establish a vacation home in a relaxing location like Maui. You can use the property to generate rental income and/or appreciation value, but still make sure it’s available for you when you need it.
Should You Invest in Real Estate?
So is real estate investing the right decision for you? These are some of the most important questions to ask:
- How much do you know about real estate? If you’re familiar with the ins and outs of real estate, or you can draw upon the knowledge of someone who is, your chances of success are much higher. If you’re totally unfamiliar, it’s a good idea to build your knowledge base first—before making any significant investment moves.
- How much time can you spare? Buying and managing a property will take many hours of your time—especially if you’re planning to be a landlord. If you don’t have those hours to spare, you may end up only adding more stress to your life.
- What other investments are you leveraging? Think about the balance of your other investments. If you already have a diverse mixture of assets and you’re seeing a strong return, you may not need real estate as an additional component.
Real estate investing can be profitable and enjoyable in multiple different dimensions, but it isn’t the right strategy for every small business owner. Your main business should still be your top priority, and in some cases, that means forgoing the real estate business altogether. Think carefully about your options before proceeding.