In the world of property investing, the terms real estate income and real estate wealth are often used interchangeably - but they represent two distinct concepts with different roles in an investor’s financial strategy. Real estate income refers to the cash flow generated from rental properties, dividends from REITs, or other income-producing assets. Real estate wealth, on the other hand, is about long-term value creation through property appreciation, equity growth, and portfolio expansion. In my blog today, I’ll break down the key differences between these two pillars of real estate investing, explore how they complement each other, and help you determine which strategy - or combination - is best suited to your goals.
What Are The Differences Between Real Estate Income and Real Estate Wealth?
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Doing vs Planning
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Making real estate income, although it also includes some planning, mainly consists of doing. By this, I mean that there is a lot of action and quick changes that investors partake in.
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Compared to real estate income, real estate wealth involves a lot longer-term planning. As long-term investors plan on keeping properties for a long time, they need to make sure the areas and markets will work in their favor. This involves a lot of planning and forecasting, to help them make sure that nothing will go wrong in their investing journey.
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Active vs Passive
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A lot of short-term investments that generate income from real estate are a type of active investment, especially with investments like flips. An active investment means that the investor will be busy and actively involved in this investment.
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From the hiring, project management, sometimes the construction itself, an active investment can not only be mentally exhausting but physically too! In contrast, a passive investment generally takes the form of most long-term investments.
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This is where more money is generated by holding on to the property for a longer period of time. This not only helps build home equity but appreciation as well. This generally does not involve as much participation compared to active investments.
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Passive investments to build wealth sometimes involve helping tenants with their needs, but this can always be handled by property managers, which makes this type of investment much easier.
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Instant vs Long Term
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Real estate income generally involves short-term ownership and cash flow. This is great for investors that love getting involved in the small details because they can see returns on their hard work almost instantly. Comparatively, trying to generate real estate wealth is generally more of a long-term investment, where you let time and a great profitable market make you double or triple of what you originally invested.
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Risky vs Safe(r)
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Even though it is important to be knowledgeable about the market with any investment, short term investments generally require way more knowledge about the current market.
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When you get down to it, it’s really about making instant income in a risky way or making long term income in a much safer way. Obviously, I would suggest the latter, but really it comes down to what you as an investor are comfortable doing with your amount of experience, skills and financial mobility.
What Are the Similarities Between Generating Wealth and Making Income?
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Wanting More In Life:
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Whether you want instant cash or you want to let it grow from appreciation, the main thing that is similar between making income and wealth is the drive to want more in life. This is a great start, and success can only be achieved by those who really want it! This drive is a great mindset to be in, it helps you learn better, make investments more efficiently, and generally make you more motivated as an investor.
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Both Require Being Knowledgeable About The Market:
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If you are flipping, or you are planning on being a landlord for your long-term investment, it is important to know how the market is doing. Some common questions about the market for those who are making income and wealth are:
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Is it a good time to buy a property?
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Is it a good time to sell a property?
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Is this property located in an area that is appreciating in value? How long will this trend continue?
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Both Require Needing A Great Team
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Real estate agents, contractors, property managers, tenant screening companies, mortgage brokers, banks, the list goes on and on. Even if you are planning a quick flip, chances are you will have interaction with so many people as well as companies.
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This can be overwhelming to keep track of all the commotion that many don’t expect with real estate, and whether you are planning a short-term or long-term ownership of a property, you will need to make sure you have people who are on your team.
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How Do I Know What Is a Good Option For Me Right Now?
When it comes to making income and wealth in real estate, the main factor to consider is patience. Some new investors come in hoping and expecting to make thousands instantly. Most of these investors also get disappointed when they realize that’s not how this market works.
If you are handy, some investors remodel houses for flipping so they can quickly put it back on the market to make a couple extra thousand in their pocket. This requires a lot of work though, and if you did not guess the market correctly, there are chances you can even lose money with a flip.
To be able to flip a house successfully, you need to make sure you buy the property below market value. But remember that you get what you pay for. If you are seeing a really low price, that’s probably because the property really needs to be fixed up! Not only will this take a lot of time to fix up the property, but money as well.
If you consider yourself a more patient person with the ability to invest some money in a long-term investment, building wealth is a great idea. Although this money won’t come instantly, this is a great way to let time help with the appreciation of your property and build wealth through home equity.
Real Estate Investing is a real business, and you must treat it as such. From finding the right mortgage broker/lender, to making sure you have a good home inspector, to finally, working with a real estate agent who knows the ins and outs of investing in real estate, it’s important to treat it like a business.
If you are thinking about becoming a real estate investor yourself, or you are already an investor and would like to leverage your current investments into more properties, or you are looking to sell one or more of your investment properties, give me a call at 905-683-7800. You can also email me at brian@briankondo.com.
I’ll be your personal guide and walk you through every step of the investment property buying and/or selling process.
If you have any other real estate-related question for me, you can reach me by calling 905-683-7800, or emailing me at brian@briankondo.com.
Thanks For Reading Today’s BLOG!
If you would like to see any of my previous blog posts, please click here.
Brian Kondo
Sales Representative / Team Leader
The Brian Kondo Real Estate Team
Re/Max Hallmark First Group Realty Ltd.
905-683-7800 office
905-426-7484 direct
brian@briankondo.com
www.BrianKondo.com
www.BrianKondoTeam.com
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