There is a paradox in real estate investing. For a start, it’s a popular interest among those who strive towards financial independence, because it can ensure a stable, long-term income with less volatility than other investments. The paradox is that although the interest is high, not many people take the steps to launch their real estate investing career.
Perhaps they don’t think they have enough capital, or they don’t know where to find helpful resources. Maybe they live in an area where properties sell at exorbitant prices, or they don’t like the idea of researching, buying, and managing a property directly.
In this article, we’ll review the major benefits and risks of real estate investing, so you can decide whether this is something you should pursue.
The Benefits of Investing in Real Estate
When you consider an investment, the benefits represent the engine that sets you in motion. Real estate investing comes with numerous benefits that attract both brand new investors with small capital and experienced investors who want to enlarge their portfolio.
Predictable Cash Flow
Real estate investments generate good, predictable cash flow. Even if you pay the mortgage and have maintenance and operation expenses, you can rely on a stable net income, which will only grow over time as you build up equity and pay down the mortgage.
Tax Advantages
Real estate investing benefits from substantial tax breaks and deductions which will save you a lot of money over time. You can easily deduct the costs of owning, operating, and managing your property. This is tightly connected to the location of your property. Explore your local and international options as legislation varies by state and country. In general, you can count on tax advantages that will help you build wealth faster.
Appreciation of Assets
The capital value of real estate increases over time. Besides rental income, you can get another substantial return on investment when you decide to sell. Also, rental income tends to rise over time, so you can expect a higher income with each passing year just from rent. Additionally, inflation affects you less in the long-term.
The Risks of Real Estate Investing
There are several major risks associated with property investments, but the key takeaway for you should be that you can mitigate the risks with proper research. Weigh each decision well and have no fear.
If you have no experience in the market or you don’t have time to take care of a portfolio, you can find qualified advisors at TFS Properties. With decades of experience, they can develop the right investment strategies for your particular situation. Here’s what you have to consider in terms of risks:
An Undesirable Location
A key choice you have to make at the start is the location of your investment property. You can exchange properties later, but how desirable is your location will determine your profit potential, so it’s best to choose well from the start. Research down to neighborhood and street. If the neighborhood deteriorates, for example, your property will lose value.
Unexpected Costs
You want to buy at the right price. A common trap, however, is purchasing a property that requires much more extensive renovation than you can tell at a first sight. It’s difficult to gauge from a walk-through whether all property systems are functional and in no danger of collapsing, especially if the property was not lived in for long.
Not getting what you paid for can lead to significant expenses for renovations and repairs. Find reliable and experienced property appraisers and inspectors before signing a deal.
Vacancy
There many reasons why a property can stay vacant for extended periods. Perhaps you have a bad tenant you have to evacuate before the end of their lease and you cannot find a suitable replacement. Maybe your tenant’s needs have changed and they leave in a moment when there’s low demand on the rental market. Any period of vacancy means loss of rental income while your expenses as an owner, such as a mortgage, insurance, and property tax, remain the same.
Real estate investing creates wealth as long as you arm yourself with sound practical knowledge and plan all your steps well. You want to take advantage of all the benefits and avoid the risks. The good part is that if you aren’t confident you can make informed decisions on your own, you can rely on professional help. There’s little excuse not to diversity your investments portfolio and include real estate too. Remember, however, that this is a long-term game. You’ll need patience.