Disclaimer: I'm not a tax or real estate professional—just a rookie who's been figuring out real estate as I go. Hopefully, some of my insights can help you on your journey, too.

1. Real Estate as a Business Learning Playground

If you’re just starting your career or have spent most of your time in a traditional W2 job, real estate can be an awesome sandbox to learn how to run a business. Stocks are passive—you invest and wait—but with real estate, you’re hands-on, turning an asset into an income-generating machine.

Once you place tenants in a rental property, you quickly realize that running it is like running a mini-business. You've got operational expenses (OPEX) like maintenance, tenant turnover, and vacancy costs. These are the same basic business principles you'd find in any company, just on a smaller, more manageable scale. It’s a perfect crash course in cash flow, profit margins, and overall business dynamics.

2. Real Estate in a Broader Investment Portfolio

Traditional investments like stocks and bonds are popular because they’re easy. You invest, collect dividends or watch your stock grow, and that’s about it. Even investments in private companies (like our recent investment in Carry) are less 'effort-intensive' than rental properties. Real estate, though, has an often overlooked advantage: leverage.

With a small down payment, you can get a loan to purchase a larger property that appreciates over time. This gives you a cash-on-cash return that can be way better than what you’d get with stocks or bonds—especially if you don’t have the capital of a high-net-worth investor.

But, a word of caution: leverage can cut both ways. Use it wisely—leverage is a tool, not an excuse to take unnecessary risks.

3. Tax Benefits of Real Estate Investing

One of the best parts of real estate investing is how many ways it can save you on taxes. Here’s a quick breakdown:

Depreciation

Depreciation is one of the most significant tax benefits in real estate. While your property appreciates over time, you can still depreciate the physical structure itself (but not the land) over 27.5 years for residential or 39 years for commercial properties. This helps reduce your taxable income, even though you’re making money from rent.

The graphic above oversimplifies how depreciation works but illustrates the power of depreciation 'losses' you can claim against rental income on your investment property, especially when said property's structural value can be in the hundreds of thousands of dollars, amortized over 27.5 years. Again, I'd recommend consulting a knowledgeable CPA to maximize your use of real estate depreciation.

Tax-Deductible (Value-Add) Expenses

Anything you do to make the property more attractive to renters—renovations, appliance upgrades, new flooring—is tax-deductible. These deductions help increase your property’s value while also saving you money come tax season. Keep diligent records to make your (or your tax professional's) life easy come tax-filing time.

Make your travel tax efficient

If you own a property in a different city or state, the travel expenses for checking on the property or meeting with local contractors are deductible. So, a savvy investor may do the analysis and opt to invest in and manage properties in a place they like to visit (should the numbers check out). Then they can write off a good portion of those trips as business expenses.

Bonus Depreciation

Bonus depreciation lets you deduct a large percentage of the cost of qualifying property components (like appliances) in the first year. It’s great for reducing your taxable income right when you’re getting started with a new property.

This benefit is, to my knowledge, new as of the Tax Cuts and Jobs Act of 2017, with a phase out schedule already underway. But for those looking to get started imminently, there is plenty to benefit from when this tax benefit is properly utilized (not something I've personally done yet).

1031 Exchange

The 1031 exchange is like real estate’s secret weapon. When you sell a property, instead of paying capital gains taxes right away, you can roll that profit into another "like-kind" property.

You can keep doing this indefinitely, and when the time comes to pass your properties on to your heirs, they get a step-up in basis—which means they won’t owe capital gains taxes on all the previous deferrals. ‘Incredible’ is an understatement, right?

There are several critical rules to abide by here, aptly summed up in this handy graphic. When properly executed, this is easily my favorite tax benefit of real estate investing.

Conclusion

There’s so much more to explore when it comes to real estate investing. I’m just scratching the surface here. From opportunity zones to house hacking, fractional ownership to REITs (including in their modernized instantiations, as I predict), there are endless ways to play the real estate game.

I want to be super clear: I am neither a pro-real-estate zealot, nor someone who, personally, is plowing the majority of our wealth into real estate. But like any curious, savvy investor, the benefits of this asset class are just hard to ignore.

Though real estate may not mint multi-millionaires at the clip we've been led to believe, I'm convinced there is a good reason why real estate is a critical part of the portfolios of every wealth-builder I know – and that has more to do with tax optimization than straight wealth creation. Hopefully, this gives you a bit of insight into why I’ve been exploring this asset class and why it’s such a key part of my own investment strategy.

If you’re thinking about diving into real estate, I hope this post gives you a good starting point!