And because I have owned and managed residential real estate for more than thirty years, it’s hard for me to relate to the question. I admit that I eat, sleep, and breathe rental houses, and it’s been that way for a long time. But I do keep up with alternative opportunities, so I think I can be objective.

As a preface, I question the use of the word "investment" as it applies to residential real estate. The act of investing has been defined as "the laying out of capital in an enterprise with the expectation of profit," and that sounds fairly passive. Most people who think of investing in something don’t expect to have to work at their investment.

For example, when you buy 100 shares of stock in a company, you have made a decision to leave the management and direction of that company to the board of directors. Not only that, the board of directors is not likely interested in your opinions on which way the company should move.

Instead, you pay cash for the stock and hope for dividends. In addition, it is hoped that the stock will, over time, go up in value. Typically, there is nothing you can do to personally affect the company performance. That is a passive investment.

Residential real estate is different. It requires some level of personal attention to make it successful.

Some people have described ownership of rental real estate as a second job, and there is definitely a "hands-on" component. But management of a rental house can be delegated to a property manager or a real estate professional, so you can minimize the owner’s day to day involvement.

Even so, I consider rental houses to be an active investment.

Once you have gotten past the basic management difference between real estate and other investments, the true major benefit of real estate becomes clear.

It is income. Rental real estate generates income. That income arrives in the form of monthly rental payments, and can begin on the first day of ownership and continue indefinitely.

Some critics would say that, in a low interest rate environment, many of those who have rented in the past have moved out of rental property and purchased homes of their own. And while that is true, the fact remains that more than one-quarter of all households in this country pay rent every month.

In recent years, our government set of goal of increasing home ownership, and we have seen a strong increase in first time home buyers. But that rate now stands at 77 percent, and further advances are increasingly difficult. Those who rent today either choose to do so for the sake of convenience, or find loan approval much more difficult as a result of income or credit issues.

And with home prices advancing faster than wages, along with recent interest rate increases, it is likely to become harder for first time buyers in the future, not easier.

The remarkable thing about the income that can be generated by residential real estate is that the income can pay for the investment.

To my knowledge, there is no other mainstream investment that the average person can buy which requires little cash up front and pays for itself over time. And that’s because lenders have found that lending a large percentage of a home’s purchase price is usually a safe bet.

The ability to easily borrow a large portion of a home’s purchase price is called leverage, and is another key advantage of real estate.

Many homeowners become landlords when they need to move to their next house and are unable (or unwilling) to sell their current residence. Rather than sell for a reduced price, they may decide to rent, simply to cover the payments. This is a viable alternative for many owners.

If you decided to move around in metro Atlanta every two or three years, and keep your old house every time you move, you could build up quite a portfolio. And there is effectively no limit to the number of times you could repeat this procedure over a period of years.

Government subsidies of the home lending industry make it possible to borrow almost the entire purchase price at relatively good rates, which are locked in for as long as thirty years. And this type of financing is simply not available to any other investment.

The combination of income and leverage creates a powerful opportunity which requires little cash in the beginning, then produces income to cover payments over the life of the investment.

This type of self-sustaining model is simply not available for mainstream investments like the stock market, precious metals, or bonds. Instead, real estate has unique advantages which make it extremely attractive to the investor who understands the risks involved.

Next week, we will examine some of the most common risks in rental real estate, and look at some ways to minimize those threats.