The pros and cons of investing in real estate
You have probably already read a lot about the benefits of investing in real property. You may have also seen cautionary tales about the dangers and pitfalls that can be associated with investing in real property.
In most cases, the negatives and positives of investing in real property are exaggerated. Truth is somewhere in the middle. You can make better financial decisions by weighing the pros and cons to investing in real property.
Pro-Use Other People’s Money
You pay upfront for all purchases of bonds, stocks or traditional investments. You can finance real estate investments with long-term fixed-rate mortgages. This allows you to finance multiple rental properties at once with minimal cash outlay. Renters are a good sign that you’re producing income. This is a reliable return for your investment.
If you buy a $200,000 rental property, for example, you’ll need to pay a 20% down payment and closing costs. This scenario allows you to leverage the bank’s money, and then have the tenant pay the mortgage. This builds equity.
Con: Steep Learning Curve
You don’t need to know much about real estate if you don’t have any knowledge. To get started, you don’t need to be an expert in real estate contracts. The more you know about real estate contracts, property management and mortgages, however, the easier it will be for you to make sound financial decisions.
This will require you to invest time and money. Either pay someone to teach you, or learn it yourself. This process can take longer and may result in you missing important details that could affect your real estate experience.
It takes time to develop and understand investment strategies that maximize your investment potential. It is important to understand where to find a great deal, how to manage your investments, and what the margins are. Although mentorship is not necessary, it can prove to be a valuable way to help you avoid costly mistakes and flatten your learning curve when investing in real estate.
Pro: Minimal Volatility
Stock market and traditional investments can be volatile. Many factors can impact the stock’s value, and they are all beyond your control.
Real estate offers a better return on your investment. Your ROI will be consistent in the short-term because you signed leases and rented your property to tenants. You will make consistent profits long-term if you do your research and choose a property that is in a good area.
Market corrections are inevitable when you learn how to invest in real estate. You can weather market corrections by having a long-term strategy that is well-planned. This will allow you to maintain overall profitability.
Property Management: Con: The Problems
When everything is going well, it sounds like being a landlord is easy. If you’ve never been a landlord before you should be familiar with the rules and regulations that apply to being one. These laws include fair housing and the trials of property administration.
Landlording requires you to jump through hoops and navigate through tons of legal red tape. Add to that the frustrating and time-consuming phone calls at 3 AM and repair requests at 4 AM.
You will need to spend time searching for the right property manager if you decide to hire one. A property manager can also impact your profit margin.
Pro: Passive income
You can find a property that generates cash flow and also increases in value over time if you do your research.
Cash-efficient improvements to your home can increase your home’s value and maximize profit. You can also invest in other properties to increase your portfolio if you are able to pay off your property faster. Smart refinancing will allow you to increase your monthly profit margin.
Conclusion
Real estate investing can be both rewarding and profitable in the long-term. Your ability to evaluate risk and calculate the cost of success is key.