Real estate is often billed as the path to the American dream. People are often told that they'll never create everlasting wealth without investing in a home or building a rental empire.
This can lead to people putting themselves in situations where they may overleverage themselves financially to fund a down payment, or they could end up disappointed when real estate takes more effort or yields slower returns than expected.
There are other ways to build wealth; for these 13 types of people, real estate is not the right investment to get them to their financial goals.
If you’re over 50, take advantage of massive discounts and financial resources
Over 50? Join AARP today — because if you’re not a member you could be missing out on huge perks. When you start your membership today, you can get discounts on things like travel, meal deliveries, eyeglasses, prescriptions that aren’t covered by insurance and more.
How to become a member today:
- Go here, select your free gift, and click “Join Today”
- Create your account (important!) by answering a few simple questions
- Start enjoying your discounts and perks!
Important: Start your membership by creating an account here and filling in all of the information (Do not skip this step!) Doing so will allow you to take up 25% off your AARP membership, making it just $12 per year with auto-renewal.
Individuals with unstable financial situations
Real estate investment comes with a hefty price tag upfront, and real estate ownership comes with big price tags on repairs and maintenance.
Someone trying to stop living paycheck to paycheck should avoid investing in real estate. One broken HVAC system or roof repair, and that financial situation could become even worse.
People without capital
While there are ways around cash on hand when you’re looking for money for a down payment, including a HELOC loan or down payment assistance, investing in real estate without capital is not the best idea.
It can put individuals in a precarious financial situation if anything were to go wrong.
Those seeking quick and guaranteed returns
Real estate is a long game. Properties generally aren’t going to skyrocket in value overnight unless it’s an incredibly hot market. And, for long-term rental properties, the monthly return is often modest.
The real return comes over time as the property is paid down and then when the property sells. If someone is looking for a quick return, real estate probably isn’t the smartest move unless you’re an experienced house flipper.
Resolve $10,000 or more of your debt
Credit card debt is suffocating. It constantly weighs on your mind and controls every choice you make. You can end up emotionally and even physically drained from it. And even though you make regular payments, it feels like you can never make any progress because of the interest.
National Debt Relief could help you resolve your credit card debt with an affordable plan that works for you. Just tell them your situation, then find out your debt relief options.1
How to get National Debt Relief to help you resolve your debt: Sign up for a free debt assessment here. (Do not skip this step!) By signing up for a free assessment, National Debt Relief can assist you in settling your debt, but only if you schedule the assessment.
People who hate debt
It’s the rare investor that’s going to sink cash into every property they buy, and that means people should feel comfortable with some level of debt if they decide to invest in real estate.
They should also understand how to manage that debt responsibly and not take on more than they can pay back monthly — even when the market isn’t performing as they expected.
Those unwilling to commit time and effort to property management
Whether someone has a short-term or long-term property, time and effort need to be committed to property management.
If it’s a short-term rental, there is significant time spent managing bookings, communicating with guests, marketing the property, and dealing with issues, including guests who can’t figure out the locks or a clogged toilet.
Long-term rentals will require time spent finding new tenants and sorting out maintenance issues.
Trending Stories
People who prefer diversification
If an investor sinks all their available funds into a down payment on one or multiple properties, there's less money to spread across the stock market, bonds, and other investment vehicles.
Those who want to diversify their portfolios should carefully consider how much real estate exposure they want.
People who prefer low-risk investments
Real estate isn’t necessarily a high-risk investment, especially when compared to the stock market. However, it’s still riskier than putting your money in bonds, CDs, money market accounts, or savings accounts.
The real estate market can be volatile and even seem like a roller coaster, watching it bounce up and down, responding to supply, demand, and interest rates.
And anyone who remembers 2008 knows that values can drop dramatically and take years to recover. It can still be a smart investment in the long run, but it may not be for everyone.
Those not willing to build a large network
To invest in real estate that requires property management, there needs to be a strong network backing up the investor.
From handymen to bookkeepers to cleaning crews, a network of trusted contractors can make or break an investor’s success. If an investor would rather go solo, then real estate might not be the right investment.
People looking for a passive investment
While a long-term rental could be a relatively low hassle day-to-day, it’s not a passive investment. Similarly, the home you live in isn’t seen as a passive investment since you’re taking care of maintenance regularly.
A short-term rental is not a passive investment unless you have a property manager — who may take 20% to 30% of profits.
Earn cash back on everyday purchases with this rare account
Want to earn cash back on your everyday purchases without using a credit card? With the Discover®️ Cashback Debit Checking account (member FDIC), you can earn 1% cash back on up to $3,000 in debit card purchases each month!2
With no credit check to apply and no monthly fees to worry about, you can earn nearly passive income on purchases you’re making anyway — up to an extra $360 a year!
This rare checking account has other great perks too, like access to your paycheck up to 2 days early with Early Pay, no minimum deposit or monthly balance requirements, over 60K fee-free ATMs, and the ability to add cash to your account at Walmart stores nationwide.
Don’t leave money on the table — it only takes minutes to apply and it won’t impact your credit score.
Those who aren’t eager to learn
Real estate isn’t an intuitive or easy way to invest. There are tax strategies to learn and implement, changing policies to navigate, and market trends to watch.
There's always something new to learn, particularly if someone wants to consistently optimize their investment and look for the next big opportunity.
People who aren’t up for a long-term commitment
Most real estate investments are typically held for years until the time is right to sell, or they’re held on to for decades while bringing in regular rent checks.
There are cases where there may be tax implications when properties aren’t sold at the right time, and even when they do sell, it can take time to line up financing and close.
People who don’t like complicated taxes or accountants
Real estate will make taxes more complicated regardless of whether a property is being bought and sold or if an investor is trying to optimize their tax strategy on a rental.
An accountant who specializes in real estate investment is the best expert to tap in these situations. If that’s not the path an investor wants to take, it’s best not to get involved in the first place.
People who hate dealing with banks
Real estate investors will spend a lot of time dealing with banks, filling out paperwork, and lining up their titles and mortgages. If this type of paperwork makes your head spin, then real estate may not be the right way to supplement your income.
Bottom line
For those who want a more passive approach to real estate investing and like investing small amounts in multiple properties, just like they could in the stock market, a real estate investment trust (REIT) can be a smart vehicle.
REITs let investors become partial owners of larger properties while receiving regular dividends. Think of it as a way to make extra money with real estate without dropping significant funds or dealing with property management.
Lucrative, Flat-Rate Cash Rewards
FinanceBuzz writers and editors score cards based on a number of objective features as well as our expert editorial assessment. Our partners do not influence how we rate products.
Wells Fargo Active Cash® Card
Current Offer
$200 cash rewards bonus after spending $500 in purchases in the first 3 months
Annual Fee
$0
Rewards Rate
Earn unlimited 2% cash rewards on purchases
Benefits
- Low spend threshold for its welcome offer — $200 cash rewards bonus after spending $500 in purchases in the first 3 months
- Cell phone protection benefit (subject to a $25 deductible)
- Can redeem rewards at an ATM for literal cash
Drawbacks
- Foreign transaction fee of 3%
- No bonus categories
- Select “Apply Now” to take advantage of this specific offer and learn more about product features, terms and conditions.
- Earn a $200 cash rewards bonus after spending $500 in purchases in the first 3 months.
- Earn unlimited 2% cash rewards on purchases.
- 0% intro APR for 12 months from account opening on purchases and qualifying balance transfers. 19.49%, 24.49%, or 29.49% Variable APR thereafter; balance transfers made within 120 days qualify for the intro rate and fee of 3% then a BT fee of up to 5%, min: $5.
- $0 annual fee.
- No categories to track or remember and cash rewards don’t expire as long as your account remains open.
- Find tickets to top sports and entertainment events, book travel, make dinner reservations and more with your complimentary 24/7 Visa Signature® Concierge.
- Up to $600 of cell phone protection against damage or theft. Subject to a $25 deductible.
Subscribe Today
Get really good with money (in just a few minutes a day)
Want to get really good with money in just a few minutes a day? The big “secret” is to start reading our free daily newsletter, Worthy.