If you’ve currently been researching different ways to invest your finances, then you’ve probably looked into investing in real estate. This is most commonly done in either two ways: buying and selling a property at an increased price or renting out a property to tenants and collecting a monthly income. Both require a lot of hard work and research in advance to generate the max profit.
Alongside shares, stocks, cryptocurrency, and mutual bonds, it’s definitely one of the most popular ways to invest and can provide you with a great income. However, like all investments, there are still certain risks involved and specific disadvantages that you need to think about. In this article, we are going to discuss the different pros and cons of investing in real estate. Interested? Then keep on reading!
It can generate a second income
One of the main advantages of investing in real estate is that you have the ability to generate a second income for yourself. If you choose to rent a property or multiple, this money can add up to be quite a substantial amount.
You can choose to invest it in other ways, pay off further properties, and put it towards your retirement fund. The options are endless, making it perfect for those that are after long-term investment.
You have more control
Real estate is a physical investment type, which means, unlike some others, you can be involved in the entire process. You have complete control over all of the decision making and can ultimately decide what you are going to do with the property, whether it be to sell, flip, or rent it.
From how much money you are going to accept to what renovations you want to do, at the end of the day, it all comes down to you. Click here for more advice about the world of real estate.
It’s not as volatile
Unlike other investment types, such as stocks and bitcoin, real estate is not nearly as volatile. While the markets do shift, the price of a house is always going to be somewhat substantial. In most cases, it should appreciate over time, meaning you can sell it at a higher price, without doing too much work. This makes it a much more preferable to individuals looking for something low risk to add to their portfolio.
There are multiple routes you can choose
When you first start buying real estate, there are numerous routes that you can choose to go down. This is a significant advantage, as you don’t have to start flipping houses right away, by yourself, without any experience. For example, aside from buying or renting, you might invest in home construction or real estate exchange-traded funds.
With so many different options, you aren’t limited to one thing and can gain more experience before moving on to something more challenging. It’s also great for individuals who don’t want to have such control as listed above.
It takes a lot of money to start
If you’re looking to start small with your investments, then real estate is probably not the best place to be. Houses cost a lot of money, even if you choose to opt for an apartment or condo in a more affordable area.
While some people use the rent from one property to pay off another, you’re still going to be sacrificing at least part of your income. When it boils down to it, you’re going to have to put a lot in a lot of effort before you start seeing any profit.
It’s a long-term investment
While a long-term investment can certainly be an advantage, it’s not always beneficial. Real estate is not very liquid, which means you aren’t able to make quick cash if you are suddenly in debt. The process takes a long time, and you’ll need to do a lot of waiting for approvals and settlements depending on the area you are buying in. This can then lead you to lose money, unlike say, gold or cryptocurrency, which can be sold relatively easily.
There are many hidden risks and costs
When you lay everything out, buying a property and selling or renting it sounds great. Easy money, right? Well, the fact is, there are many hidden risks and costs that will undoubtedly forget at some point.
For example, you might think a home is in excellent condition. But without doing the appropriate checks, you, later on, might find it structurally unsafe and riddled with pests. It might end up costing you more than it’s worth to fix everything up. So, to get around this, you pay for a home inspection, but that can also cost you a few hundred dollars. There are so many small things that you need to take into consideration. Otherwise, you may be in over your head.
Tenants can be hit or miss
If you’re lucky, you might find some great tenants to rent your property to. However, that’s if you are lucky. Tenants can always be hit and miss, and if you get the wrong ones, you might find yourself in some sticky situations. Chasing up payments and fixing damage can be a nightmare.
On top of all of that, you have to be prepared that you might not have tenants at all. Leases run out, and people move on, and depending on the market, you might be left for an empty place that you need to maintain for a while.
By taking into consideration all of the above, hopefully, by now, you have a better understanding of the dynamics involved with investing in real estate. It’s easy to see why it’s such a popular choice, but it’s still important to consider the negatives so that you can prepare yourself. It’s always important to do your research, and of course, go over your finances, so you can see what the smartest decision for your portfolio is. What do you think? Would you give real estate investment a go?