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Investing in real estate may seem like an attractive prospect, but not everyone agrees on whether it’s a good investment for the average American.
Some see it as the pinnacle of wealth generation, while others believe real estate requires too much upfront capital to invest and too much ongoing capital for property management and maintenance.
“The brightest people in real estate will say if you really account for maintenance and upkeep, then real estate has not outperformed other asset classes,” New York University professor and finance expert Scott Galloway said on Steven Bartlett’s “The Diary of a CEO” podcast in July 2024.
But that hasn’t stopped the renowned entrepreneur from making “good money” from real estate investing and enjoying the process.
Here’s why Galloway likes real estate as an asset class — and how you can get your piece of the pie.
Galloway described real estate as “the most tax-advantaged” investment you can make in the U.S.
“There are very few asset classes you can lever up four-to-one,” he said. “A 20% downpayment? I can’t buy $100 of Apple stock for $20! It’s huge leverage [and] the interest on that is tax deductible.”
Mortgage interest, property taxes and certain maintenance expenses are often tax deductible, helping homeowners or investors to reduce their overall tax liability. Also, if you hold onto your primary home for at least two years, you may qualify for capital gains tax exemptions.
Even if the mortgage rates are somewhat high ahead of the holiday season, you can benefit from getting a mortgage now.
Despite the potential tax breaks, a mortgage is a huge undertaking — you need to have a clear picture of your finances before you delve into it. A financial advisor can help you out.
Advisor.com connects you with vetted fiduciary financial advisors near you. All you have to do is answer a few simple questions about your finances, and Adivsor.com matches you with a short list of certified experts to choose from.
You can then set up an introductory meeting with no obligation to hire.
Anyone with the time and means can build a real estate portfolio. But you do have to be somewhat strategic about where you invest in property.
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Steven Bartlett shared some advice he received from his brother during the podcast: “If everybody is playing the game, the returns probably aren’t great from it.”
Galloway agreed.
“It goes back to sex appeal — too much capital going in,” he said. “When everyone’s trying to buy homes in a certain area, that usually means it’s probably getting overvalued and, like any other asset class, it can lose money.”
But even up against tricky market dynamics, Galloway is still a fan of investing in real estate.
“The reason I like it is because it is a form of forced savings,” he told Bartlett. Galloway noted much of the savings for baby boomers is tied to the equity in their homes.
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Galloway’s insights into establishing a passive income stream through real estate might seem old school.
“Find a nice home or a rental unit that you can rent out or upgrade — maybe you’re handy,” he said. “Do that every few years and take advantage of the tax deduction and then roll into something bigger.”
But it’s easier said than done. Not only do you have to worry about downpayment and monthly mortgage payments, but you also have to remember the headaches that come with renting out your investment property.
New investing platforms are making it easier than ever to tap into the real estate market.
For accredited investors, Homeshares gives access to the $36 trillion U.S. home equity market, which has historically been the exclusive playground of institutional investors.
With a minimum investment of $25,000, investors can gain direct exposure to hundreds of owner-occupied homes in top U.S. cities through their U.S. Home Equity Fund — without the headaches of buying, owning or managing property.
With risk-adjusted internal returns ranging from 12% to 18%, this approach provides an effective, hands-off way to invest in owner-occupied residential properties across regional markets.
If you’re not an accredited investor, crowdfunding platforms like Arrived allows you to enter the real estate market for as little as $100.
Arrived offers you access to shares of SEC-qualified investments in rental homes and vacation rentals, curated and vetted for their appreciation and income potential.
Backed by world-class investors like Jeff Bezos, Arrived makes it easy to fit these properties into your investment portfolio regardless of your income level. Their flexible investment amounts and simplified process allows accredited and non-accredited investors to take advantage of this inflation-hedging asset class without any extra work on your part.
If you want to take it one step further, you can try investing in commercial properties. While commercial real estate has definitely taken a hit post-pandemic, necessity-backed properties like grocery chains and health care properties have held strong.
First National Realty Partners (FNRP) allows accredited investors to diversify their portfolio through grocery-anchored commercial properties, without taking on the responsibilities of being a landlord.
With a minimum investment of $50,000, investors can own a share of properties leased by national brands like Whole Foods, Kroger and Walmart, which provide essential goods to their communities. Thanks to Triple Net (NNN) leases, accredited investors are able to invest in these properties without worrying about tenant costs cutting into their potential returns.
Simply answer a few questions – including how much you would like to invest – to start browsing their full list of available properties.
However, owning a share of a project or property this way holds some risk — for instance, you could receive no returns and these assets are often illiquid. Speak to a professional if this investment is right for you, especially if you are retired or close to retirement.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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