Long term prospects for real estate investing - a pretty safe bet?

Question

As a business it seems that investing in real estate is about as safe as you can get. To understand what I mean let me tell you where I'm coming from.

I work in IT and have for the last 25 years. I'm self-employed and service small business and residential clients for the past 9 years. It's a good job but it's not a business. If I'm not working I'm not making money. That's OK for now but I want to grow into other businesses that are in the cash flow quadrant.

I'm not interested in expanding my IT business as that would entail hiring other technicians and overhead. The other problem with expanding is the changing nature of technology and the market for products and services. Look at how much things have changed since the first iPhone five years ago. In the 4th quarter of 2012 there were more tablets sold than desktop computers, for example.

Real Estate, on the other hand, seems constant. There will always be demand for housing. There may be some fluctuations but not complete obsolescence like in other fields.

My plan is to begin by rehabbing and flipping properties for initial cash flow then begin buying and holding for long term passive cash flow. I've been very interested in flipping for many years but stayed on the sidelines. Now I'm in a position to slowly get started. Also, I'm looking more toward retirement down the road.

And owning real estate in retirement seems like the best bet out there. Especially when I see what happened to others in the last few years who had most of their money in stocks and bonds.

I'm less excited about buying and holding. My interest has always been in flipping. But, buying and holding, in combination with flipping, seems like a great long term wealth building strategy that is pretty immune to problems that other kinds of businesses and investments face.

Feedback?

Brandon Turner · Answer

Hey Rick Strobel welcome to BiggerPockets! I think you are on the right track, though, with looking toward real estate as a good, stable business. Flipping can be fun (when it works) as long as you understand the risks, buy smart, have multiple exit strategies, and know that it's a job like any other - when you stop, it stops. But you get that, and that's where buy and hold comes in.

Anyways - thanks for introducing yourself! I look forward to seeing you around the site. Be sure to check out our Start Here page!

Matt Schelberg · Answer

Rick, I agree with you 90%, and especially when it comes to risk with tech vs. real estate. But I think we have to consider the entire market cycle. Right now it is relatively safe, but eventually it will be risky when the prices aren't supported by the fundamentals. Flipping in that environment would be incredibly risky. But there are strategies that can survive a full market cycle, and buy and hold is definitely up there, given that you have a good entry point.

I think you are right on the money with your plan to transition to rentals eventually. I remember a good concept from episode 1 of the BP podcast: flipping FUNDS your real estate business. You cannot count on it always being there, because eventually the fundamentals won't support it.

Also, there is definitely an upper growth limitation on a flipping business. The limitations are time and opportunities to deploy capital. Eventually you will be limited in the number of deals you do each month. But hey, we should be so lucky to have that problem, right?

Long term prospects for real estate investing - a pretty safe bet?

2 Replies