Stop me if you’ve heard any of these phrases before: “real estate investing is too risky,” “we’re due for a real estate crash,” “what if a tenant doesn’t pay rent?” Real estate investing, like most other things in life, absolutely comes with risk. But, what if we turned some of these phrases and questions around: “can you afford not to invest in real estate?”

There is risk with most of our traditional income sources. As a W2 employee, it is possible that your employer could lay off employees or enact pay cuts with you having little to no control. If the pandemic taught us anything, it is that some “safe” W2 jobs weren’t so safe after all. Some folks, who relied exclusively on W2 income to put food on the table, found themselves in the unfortunate position of being out of work. The unexpected pandemic has also forced us to consider unpleasant realities that other black swan events – whether viral, tech, or otherwise – could cause a further realigning of the workforce, and dramatically impact our W2 income. Additionally, as tech advances continue, some jobs could become automated and obsolete.

Next, rampant inflation has many rethinking their cash on hand. If inflation is, let’s say 5% – meaning at its core that most things we purchase are becoming 5% more expensive – and our “high-yield” savings accounts are collecting a .5% return, it is becoming clear to many what is happening to our cash. Our cash is literally becoming less valuable by the day, and our buying power is decreasing.

Real estate, like most other things, has its risks. All of this is to say that there are always risks in life.

But, real estate is actually a hedge against some of the foregoing. Real estate returns give investors a baseline of cash flow in the event that their W2 income decreases or is eliminated. Moreover, real estate investing is also a hedge against inflation because investors typically leverage long term fixed debt, where loan payments remain largely similar over time, while rental rates and real property values increase during inflationary times.

Fortunately, as real estate investors, we have the power to partially mitigate our risks by, among other things, gaining knowledge, buying smart, and assembling a power team.

The lesson to some is, perhaps, the riskiest thing of all is relying on a single source of income, or single strategy, to sustain your livelihood. Mitigate your risk by pairing real estate investing with other parts of your life and portfolio.

CTTO Article Source: www.biggerpockets.com