Is it REALLY Real Estate Investing?
Real Estate Investing is a very broad term and includes an almost bewildering array of options. Let’s take a closer look at the concept of real estate investing.
The definition of investing is “to put (money) to use, in something offering potential profitable returns, as interest, income, or appreciation in value”. Real estate investing frequently includes far more than just investing. It also includes running your real estate business. This is where many people become disillusioned or frustrated.
Compare real estate to the stock market. When you invest in a stock the market tells you the current price. You can only decide to buy or sell, and at what price. You generally can’t buy stock at a discount to its current price, or make improvements to increase the value of your stock. Real estate allows you to buy at a discount, and then use your personal knowledge, skills, and efforts to create additional value. You are in control. On the other hand, your stocks don’t ask you to deal with contractors, advertising, tenants, or vacancies. Your stock portfolio doesn’t ask for additional money to fix a roof or a water heater. When is the last time your stock called you on a Saturday afternoon because the furnace didn’t work? A stock is a pure investment. Real Estate investing is really a business that MAY also involve an investment.
As a business, your results are based on your efforts and decisions. To make good decisions, you need to understand that Real Estate Investing is a business and needs to be treated as one. Compare the most common real estate businesses to other non-real estate businesses. If you are wholesaling, you’re a distributor. Retailing is primarily the construction business. Landlording is the rental business (big surprise!). You are running a business. Your business simply has an expensive product in a fixed location.
Don’t let the terminology mislead you. Most people who think they are Real Estate Investors are really running a Real Estate Business.
Darrin Carey
Homes and More, LLC
2702 Linden Ave
Dayton, OH, 45410
Comments (4)
Good point, Charles.
Sharad M., over 13 years ago
The idea that you can just put money into an investment and that with no further attention it will grow into this huge pot-of-gold is just not reality. Investments of any kind must be managed and work is involved. If you don't want to do your own work then you have to invest in a managers time. Many who invest in stocks choose to invest in a manager. Regardless of the investment it is important to be informed and understand what is you are investing in.
Account Closed, over 13 years ago
"When is the last time your stock called you on a Saturday afternoon because the furnace didn’t work? " I hate this feeling and sometimes I need to keep reminding myself that real-estate isn't anything but passive investment.
Sharad M., over 13 years ago
You are right--there are differences between investing and running a business, The lines seem to get blurred often. Understandable, it you are doing both. The way I look at my portfolio is that I can enhance and protect the investments by servicing them myself. I do try to draw a distinction between the capital and my work. It doesn't really bother me when wholesalers say they are investors. It's just a semantics. And they are investing their time and attention.
Jon Klaus, over 13 years ago