Why Business Owners Should Also Invest In Real Estate
Business owners often count on their businesses almost exclusively to secure ongoing revenue and plan for the future. They might plan to sell the business eventually, using the money to fund their retirement, or might imagine working for the company indefinitely, with a consistent line of income for the foreseeable future. However, it’s a good idea to have a secondary line of income—even if you’re confident in your business.
A second line of income will serve as a backup plan, giving you a steady stream of revenue even if your business falls on hard times, or if you decide to leave prematurely. This way, you won’t have to scramble to find something to replace your main plan. More than that, a second line of income will increase your total income, accelerating your retirement plan and giving you more options for the future.
Among your options for a second line of income, investing in real estate is one of the most reliable.
The Real Estate Advantage
There are a few distinct advantages business owners receive when investing in real estate for a second line of income:
- Flexibility and possibilities. There are many different ways to get involved in real estate investing, and all of them have the potential to earn you more money. If you feel like doing the work and you have the expertise, you could potentially look for low-cost properties to flip. If you’re interested in long-term growth, you could focus on properties in neighborhoods with a high potential of flourishing in the future. Of course, if you’re after a consistent monthly income, you could also seek properties with high rent potential; you’ll need a guide like this to help you calculate effective gross income, but assuming your numbers check out, you can usually count on a small monthly profit (and plenty of cash to keep up with your loan).
- Rental income and cash flow. One of the most advantages real estate investing strategies is investing in rental properties. With consistent tenants, you can often count on monthly income to cover all the expenses associated with property ownership, with a bit left over. This can help supplement your business income in the short-term, and when you’re ready to retire, you can sell the property altogether.
- Hands-off nature. While being a landlord is time intensive in some regards, for the most part, real estate investing is a hands-off strategy. You’ll have to take action when a property needs repairs or when a tenant isn’t paying rent, but most of the time, you won’t have to do anything. And if you hire a property management firm or an individual property manager, you’ll have even fewer personal responsibilities—so this won’t interfere with your primary business.
- Scalability. Real estate investing is also something that’s easily scalable. Most new real estate investors start with one property, often a single-family or multi-family home. Once they gain more experience and save more cash, they can afford to add another property to their portfolio, then another. There’s no upper limit here, enabling you to purchase major apartment complexes or other high-profile investments if they serve your goals and needs.
- Fixed assets. Real estate properties are fixed assets that exist in the physical world, and they exist in a finite supply. They have a long history of pricing stability, with a trajectory that makes them more valuable over time (especially in good, flourishing neighborhoods). This gives you more control and more reliability than other investment options.
- Selling options. At any point, you can sell your property and raise funds from the sale. While real estate properties aren’t as liquid as, say, a savings account, you can generally count on finding a buyer within a few weeks to a few months (assuming you’re listing at a fair price). This gives you a ton of flexibility—if you need extra cash for your business, you can sell a property to cover it. If you decide real estate investing isn’t for you, you can pull out.
If you’re interested in getting more exposure to the real estate market, there are a few things you’ll need to do first. For starters, you’ll want to run a current assessment of your financial strategy and risk profile to make sure you can tolerate the risks associated with real estate investing. If you’re completely new to the market, it’s also a good idea to find a mentor, who can help you understand the basic principles of real estate investing.
From there, it’s on you to come up with a plan. Are you going to look for properties with the highest potential for long-term growth? The highest profitability when renting? Once you define a goal, you’ll have a much easier time finding a first property that aligns with that goal.