Generally speaking, real estate carries several drawbacks as compared to index funds. Some of those drawbacks are:
- Potential higher risk
- Lower liquidity (takes longer to sell and often requires selling at a discount)
- Higher overhead costs (maintenance, management, etc)
- Larger cash increments required to get started
In return for accepting those drawbacks, it is possible to earn leveraged returns much higher than the typical stock market performance, as well as gaining substantial tax advantages - a well-managed rental investment can spit out cash while still giving you a tax deduction. The tax code is built to delay taxable income almost indefinitely for a smart landlord, and in some cases provide lower tax rates (by essentially converting cash flow into capital gains). However, it also requires substantially more knowledge to ensure legal compliance, proper accounting, etc., and there are plenty of ways for it to go wrong.
Being a landlord (especially if you self-manage) requires a whole set of skills that are mostly gained through life experience. Experience with homeownership and home maintenance is big. Knowledge of accounting and tax principles is also important. Good negotiating skills can help avoid evictions and legal battles. In CA, the law is often on tenants' side and you need to know all the rules as a landlord to avoid liability. As you will see if you stick around, plenty of people here are in the business and will gladly share what they've learned. Look for some other threads on rentals and you'll see how many of us have learned the hard way what to do and not to do. Good luck!