Like you would do in any other investment, there are upsides and downsides to investing in real estate. As such, you must do your due diligence, whether using an industry expert or doing it all by yourself.
This article looks at the benefits of investing in real estate and the possible pitfalls you’re likely to encounter.
But first:
What is Real Estate Investing?
There are plenty of options when it comes to investing in real estate. These investments give returns through the increase in value. In addition, you can develop a property and lease or rent it out to a tenant.
The key to making a suitable investment is researching and finding the best fit.
Advantages of Investing in Real Estate
There are positive reasons why it’s advisable to invest in real estate.
- Property Appreciates Over Time
Well-thought-out property appreciates over time. While there are chances that you may invest in the wrong property, there’s always a greater chance of getting a valuable property at a discount.
It’s even better to purchase property in an up-and-coming market because its appreciation rises even more.
- Real Estate Possesses Exceptional Tax Benefits
The exceptional real estate tax benefits help you grow your wealth as time goes by. Furthermore, rental income isn’t subject to self-improvement tax, and the government allows tax benefits for those investing in real estate, such as depreciation.
- Investing in Real Estate Offers Steady Cashflow
Rental property offers a steady monthly income, referred to as cash flow, which is the money left after settling your bills. Cash flow provides continuous passive monthly income, allowing you to focus on other essential aspects of life.
- It Doesn’t Require Too Much Initial Capital
It might surprise you, but investing in real estate is easy, even when financially constrained. With crowdfunding sites, you can pool with other investors to invest in income-generating real estate property.
- Investing in Real Estate Offers Protection Against Inflation
Historically, real estate investments keep up with inflation, which makes them an excellent inflation hedge. As other prices go up, so do property value and rent.
Cons of Investing in Real Estate
Investing in real estate has disadvantages you want to consider before leaping.
- Low Liquidity
Compared to shares and other investments, you can’t expect to get money from the property as and when you like. Depending on the property location, it could take months to dispose of the property.
- Some Properties Don’t Increase in Value
Market fluctuations may cause your property to decrease in value, leading to negative equity.
- High Entry Costs
Saving up to enter the real estate market can be a challenge. Other charges include real estate agent fees, legal charges, stamp duty, and more.
- Difficult Tenants
Sometimes you might have to deal with a troublesome tenant. Thus, it’s advisable to have funds set aside for unprecedented tenant woes. You may also experience a dry season where there are no tenants, leaving you to shoulder the property costs.
- Real Estate Investments Require Maintenance and Consistent Management
Despite its tax benefits and passive income, investing in real estate means you have to keep up with maintenance and property management. It also means you have to cater to tenant needs.