Real estate investing is just one path you can take to build wealth. How does investing in real estate compare to other paths to wealth?
Let’s look at the wealth building strategies of four very different investors.
Joan is interested in the stock market, but is naturally conservative. She has spent years building a portfolio of solid dividend-paying stocks. Those dividends are how she funds her retirement. Her actions aren’t exciting, but she can usually count on enough money to be comfortable. Joan has been collecting dividend-paying stocks for many years.
Harold lives off the interest on some utilities, some government bonds, and some corporate bonds. Of course, depending on the risk, the returns are very different for each type, paying only the original premium or interest, with no change over time. While Joans’ dividends may go up (or down), Harolds’ interest will always be the same as when he bought the bonds.
Betty is a merchant. She plays (quickly buys and sells) the stock market and even does some futures and options trading to generate profit to fund her retirement. Her savings are enough that she can usually accumulate some profits on good trades to make up for her mistakes (everyone makes some “mistakes”. We never know in advance exactly what the market will do). She plays more volatile stocks, so she doesn’t think about dividends or interest. Betty has to actively trade (trade frequently) to generate income.
Dave is a real estate investor. Over time, he’s been building an inventory of rental houses, a couple of duplexes, and even a small six-unit apartment project. He works a few more hours each week than the others because he takes care of his own management. Dave knows that even if his property values temporarily decrease due to a drop in real estate values, his rents will continue to rise at the same rate.
And Dave isn’t worried about his property values going down any time soon, because he doesn’t plan to sell; he plans to hold on to his wealth-generating real estate for a long, long time. When his properties have paid for themselves, he will have even more income.
