Here's a portion of an interesting conversation I recently had with a reader via email. He sent me the following:
I'd like to hear your thoughts on something. Do you think there's a bias against real estate as an investment vehicle in the personal-finance blog community?
Because, as I get more familiar with the conversations going on, I'm starting to pick up on one. It seems that people think that:
1) Real estate is too risky because of its lack of liquidity
2) On average, it's less profitable than other investments like stocks
Coming from a family of professional real estate investors, I find it fascinating. I'm not sure where the bias is coming from. Maybe a backlash against all of the get rich quick gurus in the real estate industry?
Here was my response:
I think there are more reasons than those, but the ones you name are certainly part of the equation. I'd add:
1. It's complicated (at least it is compared to investing in stocks/index funds.)
2. It's time-consuming. There's a cost to finding, managing, etc. the right real estate.
3. For those of us who don't like debt, it goes against our personal preference not to borrow money.
4. You're usually dealing with such large numbers that many people can't participate. For instance, you can invest $5,000 in stocks, but you can't buy a house or commercial property for $5k (and not have debt.)
I'm a minor member in a real estate LLC (we only have one property at the time), invest in a mutual fund REIT, and, of course, own my house, so I feel like I've got real estate covered as a decent part of my overall net worth. I'm not going to add any extra real estate to my portfolio unless I find a really great deal locally (as home owners get desperate to sell.)
How about you? Do you invest in real estate? Why or why not? And if you do, how much do you have invested?