Real Estate Investing Basics

Why Investing in Bricks & Mortar (Real Estate) Is Your Best Bet

Expertise: Real Estate Investing Basics, Personal Development, Landlording & Rental Properties, Real Estate News & Commentary, Business Management, Flipping Houses, Real Estate Deal Analysis & Advice, Personal Finance, Real Estate Marketing
242 Articles Written

So, you have some money lying around and you’re looking to invest. After all, right now your money’s just sitting there, doing nothing. Luckily, you can do just that. Your options? Well, typically these range from investing in company stocks to buying government bonds. Each of these comes with a different kind of risk and different kind of return.

Want more articles like this?

Create an account today to get BiggerPocket's best blog articles delivered to your inbox

Sign up for free

Most will probably be considering buying stocks or investing in mutual funds. The returns can be great, but with each fluctuation in the market, the stock prices fluctuate as well. There is no assurance that after, say, 5 years, this investment will give you a guaranteed return. But there is another way of investing money and having great returns: Real Estate.

Investing in the real estate market can be a great way of putting your money — or your little green soldiers, as I refer to them — to work. In comparison to these investment options, it presents a far better stability and more certain returns. Shelter is one of the three basic needs of human beings. No matter the state of the economy, booming or slowing down, people will always need a roof over their heads.

So, what are the benefits of investing in real estate? Well, not all real estate investing is equal, so let’s first have a look at some of the different investment vehicles that real estate has to offer.

Property Classes

When talking about real estate investments, it’s important to understand what kind of property you’re investing in, relative to the local market. That’s why there are property classes. For investors, a property class is an important factor, as each class has a different level of risks and a different rate of return. Properties are graded and divided into classes based on their location or neighborhood and age. There are 3 classes, which are explained in detail over here.

Related: Why Warren Buffett’s Stock Picking Methodology is Outdated (& Real Estate is the Best Investment)

There are class A properties that are the most desirable and have all the bells and whistles you could want. These are newer buildings and built on prime locations with very low vacancy rates. They tend to be mostly owner occupied.

Then there’s class B. These buildings are typically a bit older than the A class properties and are less expensive to rent. Their neighborhoods are comparable to that of an A class property, though, and the properties are well maintained. These tend to be 50% investor owned and 50% owner occupied.

Finally, class C properties are properties that have a clear need for renovation and are located in less than desirable neighborhoods. These can even require an update of the entire infrastructure before they can generate cash flow. These are the highest risk out of the three and are usually in areas that are primarily owned by investors.

From an investor’s point of view, class B is the most attractive. These properties are located in proper neighborhoods and can even be scaled up to a class A or B+ property through renovation. Since these properties attract good tenants, the cash flow they generate is higher than class C and far more stable as well. Your tenants are far more likely to have a job because of the location of the property. In Toledo, Ohio for example, a class B property would be near or in the Washington Local School District, Toledo University, next to ProMedica Hospital or the General Motors Powertrain Factory.

Benefits of Investing in Real Estate

Cash Flow

A rented out property that has been managed and maintained properly provides steady income in the form of, you guessed it, monthly rent (aka little green soldiers). Apart from this, the amount of rent for a given tenant is also not affected by any kind of slump the real estate market might be going through.

This means if you have leased your property to a tenant for two years, you’ll be getting the agreed amount of rent each month for the next two years. That’s an amount of certainty very few investments can claim. In my almost 5 year of investing in real estate, I have never see rents go down in any market. Some of my mentors who have been in the game for 25+ years and have experienced every cycle can vouch for the same.



In general, a property in a decent location and maintained properly shows an increase in its value over a certain period of time. Of course, the appreciation rate is highly dependent on the location and the market. Different areas will have different appreciation rates, and as we’ve seen in 2008, the economy can have quite a large impact on real estate prices. Still, on average, real estate prices steadily increase over the years, which makes them a pretty good investment option. Now, make sure to not count on it happening. Consider it a cherry on top of an already solid cash-flowing rental.

Tangibility & Opportunity for Value Add

Ever held a stock in your hand? You can’t. You might get a piece of paper saying you own that stock or bond, but that’s about it. While your property is generating cash flow, you still own that building. You can easily get a higher value from any sale later on by improving its appearance and functionality. Styles and trends of interiors change with fashion, and so can your property. You get to be the CEO, COO and CFO of that investment, and for the most part, the future and any profits are entirely in your control.

Federal Tax Benefits

The federal tax benefits allow you to deduct a portion of your property value from your income. Depreciation is an income tax deduction that allows a taxpayer to recover the cost of wear and tear and deterioration on an annual basis. So, while the whole of invested property generates income, only a part of the value requires you to pay taxes.

If you’re renting out your property, you’ll enjoy some additional tax benefits. As it happens, rental income is considered passive income, which means that they’re not subject to self employment taxes. In case of other investment options, tax benefits are usually not available. Disclaimer: Make sure to discuss in more detail with your trusted accountant. 🙂

Real Estate Isn’t Liquid

When you invest in stocks, you can go to sleep being a millionaire and wake up being dirt poor. Real estate is a physical and tangible thing. Because of this, it is far more stable. It isn’t as sensitive to market fluctuations like stocks and bonds. If the market crashes, you can still simply wait for the market to correct itself while your cash flow remains more or less steady.


So You’ve Found the Holy Grail!

No investment is without risk, and things can always happen. When you’re looking to get your little green soldiers to work, though, you really should consider all the consequences. Investing in the stock market can be very rewarding, but certainly comes with a lot of risk. The next best thing is to invest in hedge funds. These are basically designed to reduce the amount of risk, and as a consequence, the rate of return. You don’t have to manage your portfolio and everything is done for you, at a price. But even without all the risk, what you’re doing when you’re buying stocks is waiting for the market to rise and then sell it when it seems appropriate.

Related: Are You Still Picking Stocks? You Are Ridiculous. Here’s Why.

Real estate investing doesn’t make sense when you look at it like that because although value increases over time, it’s nowhere near the increase that the stock market will bring you. And that’s exactly right, but with real estate, you can have tenants, creating proper and consistent cash flow. And that’s where the value is created. You put a roof over someone’s head, and in turn they give you money. Want to sell anyway? No problem, you’ll still make a profit, especially if you decide to do some renovations and increase the value of the property by remodeling the kitchen or upgrading the bathroom.

Though the real estate market has its ups and downs, it is far more stable compared to the alternatives. That makes it one of the best investment options. By carefully selecting your team and the area, real estate is a safe and steady investment option. Its main value comes from the amount of control real estate gives you. There are no crazy market fluctuations on a day to day basis, and when you have tenants, you’ve got one of the most reliable sources of income available in the market.

What’s your favorite form of investing — and why?

Let me know with a comment!

Engelo Rumora, a.k.a."the Real Estate Dingo," quit school at the age of 14 and played professional soccer at the age of 18. From there, he began to invest in real estate. He now owns real estate al...
Read more
    Earl Allen Boek Rental Property Investor from Redding, CA
    Replied over 4 years ago
    I’m sorry, I just do not agree. In 2008, make that 2007, in my case, I was invested in brick and mortar. It was all leased out, but it didn’t help when the property values went south. The only saving grace for me, was it all was housed in LLC’s and due to a health issue and surgeries, and the fact that it had been funded with private money, I was forced to get it all back, at the peak of the market (which was good for me) they were eager to grab it rather that work with me. But when the commercial market started down, and they tried to bail and sell the medical and dental offices and commercial lots. They followed the market straight down to you know where. I don’t forget lessons learnt. And it’s about to happen again, Some (some pretty strong sources) are saying within the next few months. I agree with that train of thought. I’m currently investing in businesses with proven performances. Buying, looking for added value or profit at the buy, then flipping them for a fast profit. I’ve seen houses in my area going unsold for over a year. Commercial deals, the last ones I picked up had been on the market 3 years. I’m not prepared to wait that long for my profit, as an investor, Why in the world would you be?
    Engelo Rumora Specialist from Toledo, OH
    Replied over 4 years ago
    Thanks for your comment Earl, I have built my portfolio and business with personal cash which in return minimizes the investment risk for when the market turns South. I’m not a big believer in using leverage to build a rental portfolio. We still have a long way to go here in Ohio so any market downturn won’t really be a down turn for us as everything is still “down” haha Thanks again and have a great day.
    Earl Allen Boek Rental Property Investor from Redding, CA
    Replied over 4 years ago
    As far as this author and his qualifications, I did the same thing in 6 months that he did, but I had NO money and NO credit when I started.
    Engelo Rumora Specialist from Toledo, OH
    Replied over 4 years ago
    Yep, When I first started investing it was for the purpose of calling myself an “Entrepreneur” or “Real Estate Investor”, I quickly woke up and smelt the rise that investing in real estate is not about the title that comes with it but more so for living life on your terms. Sold my portfolio and started to re-build it with cash and cash only. I was and still am buying high cashflowing properties for myself an other investors. Thanks and much success.
    Replied over 4 years ago
    Warren Buffet probably will disagree with this article. He mainly follows the below: “Buying into great corporations, with good mgt, at a good price. His company is making money while he is sleeping.” There is no way Real Estate can compete with the stock appreciation of a good company and stock splits and it is liquid. Selling a house or flip requires cleaning/repairing and paying 6% agent fees. Selling stocks require very minimal and you can invest next day w/o any “surprises” that comes with RE and at closing. I think we should put $$ in both to balance it out and learn how to pick good value in both areas.
    Engelo Rumora Specialist from Toledo, OH
    Replied over 4 years ago
    Hi Austin, Thanks for your comment. I have read a ton of books on Warre Buffet and love his approach to stocks. I have actually implemented one of his strategies regarding buying with a margin of safety. For example, I have a set price I want to pay for a property and if I can buy it below that set price, that is my extra margin of safety and I know its a stellar deal 🙂 Thanks and have a great day.
    Replied over 4 years ago
    We must be getting close to the next stock market “correction” when everyone (all the commenters) believe that the stock market is the best option for investments. Investing is all about timing. When everyone thinks they can flip a house, then it is time to get out of real estate until the inevitable crash occurs. Then you can pick up properties for pennies on the dollar. When everyone thinks the stock market is “easy”, it is time to sell. You can buy back after the crash. It may be next week or it may be next year, but it is coming.
    Engelo Rumora Specialist from Toledo, OH
    Replied over 4 years ago
    Thanks Michelle, I heard a saying that when the NYC cabbies start talking about how good the stock market is then you know its slowly time to sell out haha. I like to joke around with, when the mum and dad investors start jumping into the market and flipping homes, then we have a problem. This can all be easily spotted in the media. They start pumping stupid success stories, etc… I think we have a few more years before anything turns South. The market is still pretty soft on the Midwest with not much growth happening either. Thanks and have a great day.
    Replied over 4 years ago
    Well, they, economic/stock pundits and Case Shiller/Redfin, have been saying stock/housing “bubble” for a while now. The housing recovery has been fueled partially by foreign/hedge_fund (Blackstone etc.) for lot of the coastal markets. Once that money dries up or they have “milked” it as much, it will find another area for better yield. The question is not if but when. US GDP is ~$18T and growing. Fed can keep printing money to fuel the rally (helping Wall Street and Housing) for much longer and dollar will not devlaue much (no other reserve currency)…
    Engelo Rumora Specialist from Toledo, OH
    Replied over 4 years ago
    Thanks Austin, The big boys are yet to start buying anything here in the Midwest. Ohio, Michigan, Indiana are still mostly untouched. They have started buying in Kansas and Missouri but that’s pretty much it here. Hopefully they come knocking on our door within the next few years 🙂 Thanks and have a great day.
    Account Closed Flipper, landlord, investor from Coronado, California
    Replied over 4 years ago
    Good article, Engelo. I had not previously seen a definition of the various property classes so I was thankful for that. While I generally agree with your points, your article greatly oversimplified the effort required to own real estate–and perhaps that is by design as this seemed like a fairly high level overview of two competing investing strategies. I think we can all agree that owning stocks is much less work than being a landlord. (Your Amazon stock never calls in the middle of the night about a plugged toilet!) Risk versus reward is a well known concept but there is also a correlation between effort and reward that folks need to understand before they start drinking from the recently-found Holy Grail. Vincent
    Engelo Rumora Specialist from Toledo, OH
    Replied over 4 years ago
    Hi Vincent, Thanks for your comment and overview. Here is a plug for our business model as you touched on “simplicity” in your comment 🙂 Bricks and Mortar through Turn-Key, completely hands off investment properties haha That’s us haha I love stocks and have an E-Trade account. Looking forward to jumping into the market again one day when it tanks. Real estate has definitely been my primary vehicle tho. If CASH is King, then Cashflow is Queen. Lets just make sure that we all have enough Cash in pocket and Cashflow coming in for when the next downturn happens. Just my $2 AUD lol Thanks