Every investor has a single purpose in mind: to make money! Real estate is your greatest option if you wish to do the same.

The total procedure is fairly straightforward. If you buy a rental property with a little down payment and the bank covers the rest, the rental revenue from the property should generate enough net cash flow to cover all of the connected expenses. You become the legal owner of a valuable piece of real estate that rises in value over time, while your senior debt is decreased due to your main payments.

Another thing to keep in mind is the following: Rental rates often increase by 2 to 3% each year, depending on inflation, supply and demand, and other factors. As a result of the growing net cash flow, the value of your home is expected to rise each year.

The exciting part is that by year five, your equity should have more than doubled (equity is the difference between the property’s worth and the amount you owe the banks on your mortgage).

If you’re wondering why the value of your investment is rising so quickly, it’s because the rental income you’re receiving is covering everything, even the interest, and principal on your mortgage.

Another appealing feature of real estate investing is that it can generate a steady stream of passive income. To put it another way, hire specialists to manage your property, collect rent, pay bills, and so on. This type of income is appealing since it allows you to continue practicing medicine. Even when you’re sleeping, the money keeps coming in. “Never invest in anything that feeds while you sleep!” my father warned me as a kid. As a result, you can’t invest in racehorses, llamas, or chinchilla farms.

Real estate is not susceptible to the whims of emotions, politics, or the vagaries of life.

There are various ways to create a passive income stream, as you undoubtedly well know. Some people put their money into the stock market, US Treasury bonds, and automated firms, while others rent or license intellectual property, and yet others start internet businesses. All of these strategies are excellent.

However, as a doctor who is likely quite busy helping people, it is critical that you choose investment options that do not require a lot of active participation. There are few available passive income sources that, in my experience, allow your income to grow over time in the same manner that real estate does. Rents typically rise in lockstep with inflation, and in unusually optimistic economic times or as a result of other macroeconomic and supply-and-demand dynamics, rental income can quadruple in a matter of months.

I don’t invest in vehicles, antiques, art, or collections because they are only a hobby for me and do not provide me joy. Yes, I have equities, commodities, and bonds in my portfolio, but as a little investor, I always feel like I’m at a disadvantage. Larger investors who work with wealth managers and investment bankers have access to a variety of information and investment opportunities that normal investors do not. You must be astute, well-diversified, and savvy as an equities investor.

The advantages and disadvantages of real estate investing

Real estate investing, like most other investment possibilities, has some risk; after all, life is risky. The major risk associated with real estate investing is that no guarantees can be made. What other hazards are there, and how can you protect your investment from losing value?

Factors like the broader economy’s growth and fall, shifting interest rates, recessions in connected markets, natural disasters, and other market hazards are all out of your control. The only way to protect yourself from absolute devastation by such hazards is to diversify your portfolio holdings and hedge your bets. Do not put all of your real estate eggs in one basket.

The sensitivity of consumer demand linked with a particular property type is more relevant to asset-level risk. COVID-19 has had a negative impact on the demand for hospitality, retail, and office facilities. Properties with consistent demand throughout the year, on the other hand, are less vulnerable. Multifamily residential properties, for example, are normally in high demand, even in weak economic times, lowering their risk.

Another type of risk unique to real estate is liquidity risk. Finding potential purchasers is not always straightforward, especially during market downturns, and it sometimes involves the help of experienced brokers and real estate agents. As a result, every real estate investment should have a longer-term investment perspective.

Leverage occurs when you borrow money from a bank to finance the acquisition of real estate. Leverage is used by almost everyone in the real estate industry. Keep an eye on the amount of leverage you use when investing. Leverage can increase your rewards, but it can also increase your risk. If you allow yourself to get into too much debt, you risk losing your initial investment and becoming trapped in a never-ending debt cycle.