Pros and Cons of Investing in Real Estate
Investing in real estate is a notion that has crossed everyone’s mind at least once in their lifetime. The main reason why a lot of people refrain from doing so is not a lack of funding but a lack of credible information on the subject matter. You see, your knowledge limits your ability to make adequate long-term investment plans, which is a key factor when it comes to the investment of any kind. So, for those who are still on the fence, here are several pros and cons of investing in real estate that you should know about.
1. Steady, passive income
The main reason why some people prefer to invest in real estate is due to the fact that a rental property may yield a steady, passive income for years to come. Decent residential properties give you about 1 to 2 percent of their total value every month, while commercial properties return 4 to 5 percent every year. Now, while it is true that property management takes a lot of work, it is not really labor-intensive. Sure, you may have an emergency or two to respond to, however, most of the time you can just assume a hands-off approach and collect your rent when it’s due. All in all, it’s an ideal business idea for those who are already too busy.
2. Self-repaying mortgage payments
Another amazing thing about investing in real estate is the fact that the rent that you collect might just cover the entirety of your monthly mortgage rate income. This is why a lot of people decide to commit to buying their own home as soon as they are able to. As a landlord, you’ll have someone else to pay the mortgage for you (the tenant). The only thing that a tenant gets out of this is the fact that their commitment is not so long-term. Still, after a decade or two of paying rent, you still won’t have a place to call your own, which is not the case with paying the mortgage.
3. Availability of professional help
One of the things that frighten people the most about investing in real estate is the complexity of the task at hand. The profitability of the entire project depends on one’s ability to choose the right real estate. This includes research, survey, inspection and, in the end, negotiation with the agents. This is why real estate agencies like Hutton & Hutton tend to diversify their services. This means that they offer a different array of services for buyers, sellers, tenants, landlords and property developers. This way, you can have a personalized approach to the situation.
4. Plan B
Investing in real estate gives you so many amazing options to choose from and renting it out or living there is just one of them. With a simple home improvement project, you can easily increase the value of the place, which is ideal for those who want to fix and flip the property that they own. Other than this, if you pick a place in a decent location, you can always use it to start your own business. Even if you change your mind on the idea later, renting out a well-made venue will increase the yield. At the end of the day, selling the place and getting your money back is always an option.
5. The cons
At the end of the day, we need to talk about the downsides of real estate investing, in order to see the full picture and figure out whether this is the right move for you. First of all, you can’t just buy a property and expect to be fully profitable. Learning a thing or two about property management is quite hard, not to mention creating a network of contacts that will help you evaluate a property that you intend to invest in. In other words, it has a learning curve. Second, it’s a long-term investment and getting your equity out of this property (if you need the money right away), is not so easy, to begin with. Lastly, while a lot of people talk about a passive income, this doesn’t mean that you don’t get to do anything. It’s still a business that requires some active management and investment of both time and effort.
Even though it’s true that there’s really no 100 percent safe investment, investing in real estate is probably the closest you can get to this concept. Why? Well, because you have options no matter what happens. For as long as your finances are in order and you do your research before investing, everything should run smoothly. Sure, this might not be the first thing on your priority list, seeing as how paying off some debts, establishing an emergency fund and other financial decisions may come first. Still, the sooner you decide to make this leap, the better.