When creating a wealth building strategy, you need to choose at least two forms of passive income. The goal is to have multiple income streams that pay you monthly, quarterly, and annually. So, when forming your strategy, you may wonder, “real estate or business?” This blog will help you determine which option is best for you and how you can integrate real estate and business together.
Questions to Help You Decide: Real Estate or Business?
Where’s the Value?
Before you invest in anything, you need to determine the value. In addition, you need a good gauge of how and when the investment will provide a return. This is easier to predict with real estate. When you invest in real estate, you have a hard asset. That means it has intrinsic value. With single-family homes, you own the property and the land underneath it.
You can also easily determine when a real estate investment will pay you back. There’s a high level of control, as you can determine profitability on the front end and have multiple exit strategies on the back end.
On the other hand, when you invest in a business, you’re investing in an idea. Whether you become an entrepreneur or invest in a start-up, there’s no guarantee that business will become profitable. In reality, there’s no hard asset. However, this doesn’t have to be an issue if there’s a good business plan and solid profit projections. You can multiply your money much quicker in business if you know what you’re doing. That brings us to the second question you need to ask–
What Comes More Naturally to You?
You should never invest in something you don’t understand. When deciding between real estate or business, being honest with yourself is important. In what areas do you have the most aptitude? Where have you gained the most knowledge and understanding?
Some people take to business like a duck to water. It just comes naturally to them. Investing in business is a great option for those with experience in the field or those with a marketable skill set. However, real estate is typically a safer option if you don’t have business acumen yet. The lessons you learn through real estate investing will teach you how to do business. If you follow our formulas and teaching, the risk is also minimal.
What Can You Get Started in More Quickly?
Time is money. While I’m not encouraging you to jump into an investment before you’re ready, getting in the game as quickly as possible is valuable. Inevitably, every new investor is going to make mistakes. The quicker you can learn from them and improve, the better! Plus, a little something called compounding interest makes time incredibly valuable.
Albert Einstein called compound interest the most powerful invention of the 20th century. Compounding interest is interest on interest, which grows much faster than interest on a principal amount. The Rule of 72 exemplifies the Law of Compounding. If you divide the interest rate on an investment into 72, the answer equals the years it would take for your money to double. For example, if your APR is 10% (roughly the annual return for the stock market), your money would take 7.2 years to double.
So, examine your resources and your timeline. If you’re considering business, what are the start-up costs of your particular idea? Do you need hundreds of thousands of dollars to invest in a franchise, or are you starting a consulting business that requires little to no start-up capital? For real estate, do you have the money you need for a down payment? Have you done the homework and made the necessary connections to succeed?
As with anything, it’s essential to count the cost before you start. As Jesus said, “For which of you, desiring to build a tower, does not first sit down and count the cost, whether he has enough to complete it?” (Luke 14:28, ESV) So, do your due diligence and evaluate what it will take for you to be “all in.”
Why Choose Real Estate or Business? Your Wealth Building Strategy Can Include Both
Many successful millionaires have built wealth by investing in businesses and reinvesting the profits in real estate. Some people invest in a business and proceed to purchase the property where the business is located.
You can also turn your real estate investing into a business. Some people go the buy-and-hold route by purchasing properties and renting them out to tenants long-term or short-term. The rent covers their mortgage, insurance, taxes, and more, providing a monthly positive cash flow.
You can also have a real estate business through buying and flipping. This entails purchasing a home for less than it’s worth, improving it as quickly as possible, and putting it back on the market. (Note that this option has more tax consequences. If you can, it is more tax-advantaged to flip a property, rent it out for a year, and then sell it.)