Ask an Advisor: Is it advisable for a 32-year-old couple to explore real estate investments as part of their long-term financial plan?

Ask an Advisor: Is it advisable for a 32-year-old couple to explore real estate investments as part of their long-term financial plan?

Real estate has always been a popular way to build wealth, and for a couple in their early 30s, it could be a smart addition to their long-term financial plans. But like any big financial decision, they need to weigh their financial stability, investment goals, current market trends, and how much risk they can handle.

Let’s take a closer look at why real estate might be a good option and the potential challenges they should think about before jumping in. If you’re a young couple cohabitating but married, before continuing, read this article (read here).

The Benefits of Real Estate Investing

The fun side of real estate investing and its potential benefits are the following.

• Property Appreciation: One of the big perks to real estate investing is that over the long-term most properties appreciate, especially in areas with growing demand.
• Rental Cashflow: Whether you are taking on a short-term rental or going for long-term renters, the goal is to make some money on top of your expenses. New investors need to understand that the cash that actually hits their bank account after expenses and saving for repairs may not be more than $100 – $200, depending on the property and number of units.
• Building Equity: By paying your mortgage each month, you build up your equity as you pay off the loan. In the beginning, a large percentage goes to interest, but nonetheless, you are still building equity each year. Starting early, at 32, gives you more time to build equity, which could mean more wealth down the road.
• Tax Benefits: The great part of a rental property is you get to deduct repairs that you wouldn’t get to do for your primary home. You can also write off property depreciation on your tax benefit. The last consideration is that the property’s appreciation is tax-deferred, so you will only pay taxes once you sell, which allows you to decide what year may be the most advantageous to sell. Find out more tax info here.

Drawbacks of Real Estate Investing

While real estate has its benefits, it’s important to be aware of the potential downsides, especially for a couple in their early 30s. Here are a few things to keep in mind:

• Upfront Costs: Real estate requires a big upfront investment. Between the down payment, closing costs, and potential renovations or repairs, the couple will need significant savings to get started. This can be a big hurdle, especially if they’re still building their financial foundation or paying off other debts.
• Market Risks: Real estate markets can be unpredictable. Property values don’t always rise, and in some cases, they can drop. If the couple buys at the wrong time or in a declining market, they could lose money or struggle to sell the property later on. You may be interested in learning more about economic indicators that help us determine the direction of the economy. Learn more.
• Ongoing Expenses: Beyond the initial purchase, owning real estate comes with ongoing costs like property taxes, accounting and tax service fees, maintenance, and repairs. These expenses can add up quickly and eat into any potential profits from the investment. Here’s an article I wrote on the forgotten cost of home buying; click here to read.
• Time and Effort: Real estate isn’t a “set it and forget it” investment. Managing rental properties, accounting, dealing with tenants, and handling repairs takes time and effort. For a busy couple, this can become a stressful and time-consuming responsibility.
• Lack of Liquidity: Unlike stocks or bonds, real estate is not easy to sell quickly. If the couple finds themselves needing cash in an emergency, they may not be able to sell the property fast enough without taking a financial hit.

The final answer from this financial advisor is if you have the financial means to start investing in real estate and it piques your interest, then go for it! Do it smartly, consider the risk and how leveraged you want to be, consider the time commitment, and don’t forget to look into other investment opportunities outside of real estate.

Have a Question to Ask a Financial Advisor?

When you’re uncertain about money matters, submit your question to Wealthtender, and it may be answered by a financial advisor in an upcoming article or in the Wealthtender Expert Answers Forum.

Need personalized help? Visit wealthtender.com to find the right financial advisor for your unique needs.

This article was originally published on Wealthtender and is intended for informational purposes only and should not be considered financial advice. You should consult a financial professional before making any major financial decisions. Wealthtender earns money from financial professionals, which creates a conflict of interest when these professionals are featured in articles over others. Read the Wealthtender editorial policy and terms of service to learn more. Wealthtender is not a client of these financial services providers.

About the Author

Blackbird Finance Nathan Mueller, MBA, CFP®

Pagosa Springs, Colorado

Serving Clients Nationwide

We Help People of All Income Levels Accelerate Their Financial Prosperity!

Areas of Focus

Budgeting Education Funding Financial Life Planning Getting out of Debt Retiring Early (F.I.R.E)