Real Estate Investor vs. Real Estate Agent: Which Option Is Better for You? (2024)

FAQs

Real Estate Investor vs. Real Estate Agent: Which Option Is Better for You? ›

Besides, a real estate investor can get money from a property by selling, flipping, and implementing rent to own options. The investor can even pledge the property with a bank to get some extra cash. None of these options are possible for a real estate agent.

Over the past 50 years, stocks have generally generated higher returns than real estate. If you had invested $33,500 into the S&P 500 in 1973, it would now be worth around $5.1 million, with an annual return of 10.59%.

A property investor is one who buy/sell/rent homes for the purpose of making a profit. A real estate agent is a person who helps other to buy/sell/rent their homes and then the agent collects a commission from it.

You Could Earn Passive Income

One of the largest benefits of real estate investing is its passive income opportunities. You can use the income earned to build a larger real estate portfolio, pay monthly expenses or save for other financial goals.

Real estate is a challenging business that requires knowledge, talent, organization, networking, and perseverance. Becoming knowledgeable and educated about the real estate market is crucial, but this often requires more than just in-class learning.

The 2% rule is a rule of thumb that determines how much rental income a property should theoretically be able to generate. Following the 2% rule, an investor can expect to realize a positive cash flow from a rental property if the monthly rent is at least 2% of the purchase price.

On its own, real estate offers many benefits, such as cash flow, tax breaks, equity building, competitive risk-adjusted returns, and a hedge against inflation. There are many other ways why real estate is such a good investment, so if you are interested in doing so, start doing your research now.

Real estate agents earn commissions on their deals. This can vary from 1% to 5%, or sometimes even more, depending on the property. However, a real estate investor earns no commission; rather, the investor benefits from the difference between the purchase price and sale price of a property.

Understanding how to manage a property is key; real estate must be managed well in order to make money. In the final analysis, real estate investment can be a very rewarding career both financially and emotionally, says Nicolais.

Investing in real estate can help you diversify your portfolio and earn supplemental or full-time income. You start investing in real estate by securing financing, becoming a landlord, flipping houses or putting capital into more passive trusts.

What are the benefits of a real estate investor? ›

The benefits of investing in real estate include passive income, stable cash flow, tax advantages, diversification, and leverage. Real estate investment trusts (REITs) offer a way to invest in real estate without having to own, operate, or finance properties.

Illiquidity: Real estate is not a liquid investment, and selling a property can take time. You may not have access to your funds quickly in case of an emergency. This lack of liquidity can be a disadvantage compared to more liquid investments like stocks or bonds.

Rental properties appreciate over time, so real estate investing is a smart way to increase your net worth. In addition to value appreciation, real estate investors also profit from rental income and tax deductions. Hence, a small amount of money invested in real estate may pay off big in the long run.

Embarking on a real estate investment journey with just $5,000 may seem daunting, but it is entirely possible. By educating yourself, exploring alternative investment options, leveraging partnerships and adopting creative strategies like crowdfunding and wholesaling, you can kickstart your wealth-building process.

Conclusion. The claim that 90% of millionaires are made through real estate is a myth. While real estate can certainly contribute to wealth creation, it is not the primary wealth source for most millionaires.

It's harder to get rich off stocks than it is to get rich off real estate. The main reason why is due to the absolute amount of money you need to risk to get rich in stocks. Even if your $5,000 stock investment goes up 50%, that's only $2,500.

Real estate does tend to increase in value over time, but appreciation is not a guarantee. You may get a better return on your money by investing in bonds or the stock market, although the value of these investments can fluctuate more dramatically.

Risk vs reward (volatility vs returns)

In general, the greater risks you are prepared to take, the greater returns you should expect, on average, over time. Shares investments are more volatile, and generally returns more over time, than property investments.

Property appreciation is a great way to build wealth, whether you simply own the home you live in or invest in multiple single-family homes. The key to taking advantage of property appreciation is understanding that investing in real estate is often a long-term endeavor.