Real Estate is a great investment for any person either seeking a long-term investment, or a way of earning regular income off rental property. Each investor has to gauge the potential risk involved before ever buying a property to rent out, or to hold as an investment. No matter what you choose to do with a property after you purchase it, there are pros and cons to both sides. You will want to consider both before deciding to invest in real estate.
Investing in Real Estate: Dealing with the Pros and Cons
There are many different factors you need to consider before taking the dive, and investing in real estate.
The Pros of Investment Properties
- You will be able to predict your income based on the number, and type of property you own. It does not matter if you live there, or just rent it out. You can gauge the amount of income you will receive. For people that are looking to rent out the property, you will know a month by month amount.
- Long term growth is an important factor in real estate investing. Even if you rent the home, as the home appreciates in value, so does your investment.
- There could be a benefit to having an investment property for tax purposes . Many of the taxes that are associated with rental income also come with deductions that can be claimed. Deductions lower your overall income helping you pay less in taxes each year.
The Cons of Investment Properties
- There is a high cost to get started with investment properties. You’ll not only need money for a down payment, but also money for any potential repairs that may come up. Many people don’t take into account the “hidden fees” that can come up when you have an investment property.
- Selling your investment property can take time, and could potentially tie up your capital for a long period of time. Unlike other forms of investing such as stocks, bonds, or gics. With an investment property, you’re potentially tying up your capital for an extended period of time.
- Managing a lot of properties can be time-consuming and can be tough to do on your own. Many people at this point opt to hire property management companies, but that can really cut into the margin you’re making.
While real estate investing can be one of the most lucrative forms of investing, it’s important to understand the pros and cons before diving right into it. Typically what I recommend is to build a diversified portfolio of investment vehicles, so that while real estate prices go up and down, you have other investments as well that are unaffected by real estate prices.