A few years ago, Katie and I were at dinner and made a decision. We had been talking about real estate for years without ever buying any. That night we agreed that the next year we would buy our first property and give it a shot.
For me, this was a long time coming. In college I majored in finance, banking, and real estate. I always wanted to be a real estate investor. I like construction, even though Katie is much better at it than I am now. When we travel, I look at real estate wherever we go. I want to understand the market, the architecture, the buildings, the layouts. It's all fun for me.
Since that dinner we've learned a lot. We've made plenty of mistakes, though nothing we haven't been able to recover from yet. It's been fun. It's been hard. It's been profitable.
It's also not for everyone. I work with families who have owned real estate for generations, and the thing that separates the people who thrive at this from the people who don't usually isn't intelligence or money. It's temperament. So before you buy your first property, here's an honest look at what this actually takes.
First, What I Mean by Real Estate
This article is about mom and pop real estate investing. Single family homes, small multi-family buildings, smaller commercial properties. The kind of real estate where you know the address, you've walked the basement, and when something breaks, someone calls you.
I'm not talking about REITs, limited partnership interests, or large institutional investments. Those are fine ways to get real estate exposure in a portfolio, but they're a different animal entirely. Buying shares of a REIT is investing in real estate the way buying an airline stock is flying a plane.
You Don't Need Real Estate
Start with the thing most real estate content won't tell you: you do not need real estate to build wealth.
Real estate can be great. The returns can be higher than alternatives like public equities, especially once you factor in leverage and tax advantages. But those returns are not free. Real estate is not passive, no matter what the podcasts say, and your time has a real cost.
Put rough numbers on it. The S&P 500 has averaged about 10 percent a year over the long run, and earning it requires nothing from you but patience. A well-run rental, with leverage, might return 15 to 20 percent on your equity, counting cash flow, principal paydown, and appreciation. Say you have $100,000 invested either way. That extra five to ten points is $5,000 to $10,000 a year. If you and your spouse spend 200 hours a year finding, fixing, and managing that property, you didn't find free money. You took a part-time job that pays $25 to $50 an hour. That's the honest way to see the extra return. Much of it is wages. The real question of this article is whether it's a job you'd enjoy.
One piece of fine print: the index fund earns its 10 percent with no debt. The rental's 15 to 20 leans on a mortgage, and leverage cuts both ways. A long vacancy or a down market hurts much more when the bank owns most of the building.
There are lots of ways to invest that can meet your goals. A boring portfolio of index funds, funded consistently for decades, will get most people where they need to go. If you're considering real estate, it shouldn't be because you feel you have to. It should be because something about it fits you.
So what does fitting look like?
Some People Like to Own Real Things
Some people like to own things that are physical and tangible. Real estate is exactly that. You can visit it, walk through it, touch it, see it with your own eyes.
Some investors are just real estate people. That's how they think, and really nothing else makes sense to them. A brokerage statement never feels quite real. Numbers on a screen, going up and down for reasons three steps removed from anything they can observe. But a brick building on a corner lot? They can drive past it. They can fix it. They can point to it. That fits their view of the world.
Katie and I don't go quite that far. Real estate is one of several things we invest in. But we each have a bit of that in us. We like the tangible feel of it, and it just intuitively makes sense. If that describes you, it's a genuine point in favor of real estate. If it doesn't, that's useful information too.
It Is Active. Literally Active.
Real estate investing means doing things. Walking through potential properties. Estimating renovation costs. Analyzing deal economics. Lining up financing. Reviewing contracts. Managing contractors. Finding tenants. Managing tenants. Addressing repairs. Managing conflict. Keeping the books.
Read that list again and notice your reaction. If some of those activities sound interesting, even fun, real estate might be for you. If the whole list sounds like a second job you'd resent, believe that instinct. It is a second job. The question is whether it's one you'd enjoy.
Nobody enjoys all of it. I'll get to that in a second. But you should like a meaningful chunk of the work, because there is no version of mom and pop real estate where the work isn't there.
Capital and Nerve
There's a financial temperament to this too, and it matters as much as the work.
Start with capital. You can bootstrap. House hacking, living in one side of a duplex while renting the other, starting with one small property. Those are real paths. But at some point, if you want to grow, you're going to need access to capital, or you're going to need to be very creative. I don't know how to do the very creative version, so I'll say it plainly: sooner or later, this takes money.
You also have to recognize that this is a long game. Even if you can double what the S&P 500 would give you, compounding takes time, and real estate has a way of consuming cash along the way. Repairs, maintenance, rising insurance costs, taxes. Despite how it often gets sold, this is not a get-rich-quick scheme or a fast pass to early retirement and financial freedom. For most people it's still going to take a long time, unless you can live very frugally. That works for some people. It doesn't work for my family.
Then there's the decision stress. You make the calls. You do the analysis, you write the checks, you sign the contracts. And I can tell you exactly when the stress really begins: the night your contract is accepted, when you lie awake running through all the ways it could go wrong, all the things you might have missed, whether you should have offered less. The winning buyer is, by definition, the person willing to pay more than everyone else, and some nights you wonder what that says about you. That's real stress. It took me time to get comfortable with it.
The other adjustment is moving from liquid to illiquid. There's something nice about a brokerage statement. It shows an exact dollar amount at the end of every month, and almost everything on it can be turned into cash in a day or two. Real estate gives you neither. You never know precisely what a property is worth, and you can't sell it by Friday. In a down market, you may not be able to sell it at a reasonable price for months or years. Early in my career I worked in commercial banking, right after the Great Recession, and I saw real estate portfolios that were simply unsaleable. Properties with paying tenants that no one would buy at any price. A brokerage statement never does that to you. You have to learn to live with the difference.
You Cannot Do It All Yourself
If a friend asked me about getting started, this is the part I'd emphasize most: you cannot do this alone, definitely not at any scale.
I'm blessed to be married to Katie for many, many reasons. In the context of real estate, we like working with each other and we have complementary skills. I like sourcing deals, analyzing the economics, negotiating contracts, and lining up financing, which happens to align with my education and career. Katie likes estimating, project management, construction, and finding and managing tenants, which aligns just as well with her professional experience. Between the two of us, most of the job is covered by someone who actually enjoys that part of it.
I should be honest about the split, though. The things I handle mostly come upfront in a project: finding the deal, the contracts, the financing. Katie does most of the heavy lifting. The day-to-day project management, the tenant management, the work that never really ends. She deserves the credit, and she does really great work.
Most, not all. Neither of us likes bookkeeping, so a friend who is an accountant helps us with that. Neither of us enjoys the conflicts that come up with tenants, neighbors, and contractors. Nobody does. Life is tough sometimes.
Beyond the two of us, we have a great team for lending, title, accounting, contractors, and trades, plus a world-class handyman. The team is absolutely essential. Building a portfolio without one would be impossible.
When I talk to people about real estate, the first reason they give for not doing it is almost always the same: what do you do when the call comes in the middle of the night that someone's toilet is clogged?
Practically, this is almost never a big issue. It does happen. Around here it's most often a clogged drain, and in a climate like Missouri's, it's HVAC on the extremely hot or extremely cold days. But this is exactly where the team comes in. For a clogged drain, Katie has a great relationship with a local drain company that can usually get out right away. For HVAC, she has a key service provider who manages all our properties, plus several backups. What sounds like a nightmare is typically just a few text messages or phone calls, quickly resolved. We are never going over in the middle of the night to unclog someone's toilet ourselves.
I mention the team because there's a real temptation to do everything yourself. It feels like saving money. But it won't get you far, and quality will suffer, because there are simply too many skills involved. I've walked through countless properties where it's obvious someone tried to do it all themselves. Poor craftsmanship, obvious code violations, corners cut in ways a professional never would. Those properties usually sell well below list, and the owner would have been better off paying for a team from the start.
There's nothing wrong with painting bedrooms and handling simple fixes yourself, especially on your first property. The trouble starts when doing everything yourself becomes the plan. As you grow, the job shifts from doing the work to coordinating the people who do it well. Remember, the point of real estate investing is not to become a contractor. If you have some of these skills yourself and can build a team to fill in the gaps, you're in good shape.
The Honest Conclusion
If you read all of this and found yourself nodding, if some or all of it sounds like something you'd enjoy, real estate investing might be for you. The returns are real. Katie and I have found it worth doing.
But it is genuinely a lot of work, and most of that work is executing well, consistently, over a long time. Analyzing a deal is fun. Dreaming about a renovation is fun. The day-to-day is more of a grind, especially when you're deep in a big project and the last five percent of the punch list takes a few more weeks than it should. That's the actual job: execution over time.
If that sounds like your kind of work, welcome. Start small, build your team, and expect to make mistakes you can recover from. A good place to begin is understanding the three main strategies and which one fits your situation. And if it doesn't sound like your kind of work, that's not a failure. It just means your path to your goals runs through something else, and there are plenty of good ones.
One last thing. There are many people who have tried real estate investing and found out it's not for them. They're often smart, very capable people. For whatever reason, the realities of the work didn't suit them, or they hit the timing wrong. But notice the key word: they tried it. Sometimes you need to give it a swing. If the risk is managed and real estate is one piece of your overall portfolio rather than the whole thing, taking that swing is perfectly acceptable. It's exactly what I mean when I talk about taking risk without sinking the ship. Finding out something isn't for you is not a loss. It's an answer.