Investing in real estate, particularly rental property is a lucrative business. Many people have multiplied their riches by purchasing land and inhabitable buildings at the right time. However, every investment has its perks and drawbacks, so it is no different from real estate. If you are looking for the long time investment, buying real estate is a viable option. If you have no prior experience purchasing and selling real estate, you definitely need to learn some basics before diving in. It is wise to understand the potential pros and cons of a venture before putting your money down.
Pro: A Tangible and Secure Investment
The best thing about real estate is that it is a concrete investment, i.e. you can see and feel it. It is undoubtedly superior to virtual assets like cryptocurrency and digital art. You can never lose property in your name, and you have the option to liquidate it whenever you want. The public demand for housing and accommodation can never cease to exist, so you know that owning real estate is progressively profitable.
Con: Initial Costs are too high
Real estate is expensive, which is why investing in it is not something many can afford. You shall require hefty initial capital to be able to buy a property that can later be rented out or sold at a profit. Paying for real estate in a lump sum (one full payment) allows considerable concession in the overall price, but arranging for such a large sum of money is impossible for most beginners. Many people mortgage property, though that still requires a big down payment, and interest is levied on the following installments.
Pro: Excellent source of Passive Income
Once you have bought a residential or commercial property, you may rent it out and generate revenue effortlessly. The money paid by your tenants can easily cover mortgage payments and other miscellaneous costs of the real estate. The money left after compensating for all the property-related expenses is yours to spend. If you invest in multiple rentals, the income generated from all sources should be enough to pay for personal day-to-day expenses and much more. Being a landlord and reaping the benefits of your real estate investments definitely beats a dull nine-to-fiver that pays minimum wage.
Con: Ongoing Costs and Maintenance apply
Real estate is a material asset, which means it undergoes wear and tears over time. As a landlord, it is your duty to conduct regular repair and maintenance practices to keep the property in sound and livable conditions. Real estate is subject to property tax, higher if used as a rental or for commercial purposes. It is recommended to get your property insured as well; the insurance you pay on a monthly basis will protect you against unanticipated disasters that may cause severe property damage.
Pro: Property appreciates over time
The value of real estate almost always increases over time. The house or land your parents may have bought decades ago is probably worth at least ten times more than what they paid for it. You can find cheap and promising property in underdeveloped and developing neighborhoods. When these areas become densely populated, the cost of real estate and the rate of rent will automatically surge. Buying real estate in an already flourishing neighborhood wouldn’t come cheap, but it is a cost-effective investment if you have sufficient funds available.
Some investments take more time to appreciate than others, thus patience is the key. Do your research before investing in a largely undeveloped area; obtaining cheap property therein could be disadvantageous if the area has no evident potential to prosper. You may get your hands on a somewhat cheap fixer-upper in a fairly affluent locality; however, the investment could backfire if the property is beyond repair or needs extensive renovation/restoration work.
Con: The landlord life comes with challenges
Transitioning to landlord status is not as easy as it seems. You may view yourself as a figure of authority, but do not forget that the position comes with a range of responsibilities. During your journey as a landlord, you shall have to deal with several different kinds of tenants. Landlords and tenants are usually at odds with each other; hence, be prepared for handling stressful situations from time to time. If you discriminate among tenants or fail at ensuring the safety and wellbeing of residents, you could end up getting sued.
Tenants with money problems may refuse to vacate your property and obtain a legal stay; you might be left with no choice other than to let them occupy the place for a certain time period without paying rent. If you invest in seasonal property, such as a beach house, bear in mind that it might not generate any income for the most part of the year.
Pro: Negligible impact of Inflation and Recession
Buying real estate is among the steadiest investments because it rarely depreciates, regardless of the country’s economic conditions. When prices go high, the value of the real estate will rise accordingly, so you won’t incur any losses. During the recession, the price of a residential and commercial property may slightly drop, but this setback is typically short-lived. The good news is that the recession provides the ideal time frame to invest in real estate. When the period of recession has passed, you can sell the acquired property at a handsome profit.
Con: Possibility of Fraud
Real estate investment is essentially tricky for first-timers due to the prevalence of fraudsters in the market. It is crucial to physically visit a property and thoroughly inspect it before you make a transaction. Ensure that the seller is genuine and the property is reasonably priced; a deal that sounds too good to be true is likely to be a scam. The best way to avoid falling victim to real estate fraud is to work with a certified real estate attorney. Your attorney will run a background check on the property and seller to determine the feasibility of the purchase, as well as take care of all the legal paperwork.