What do you want to know

The outlook for the stock market and much of the economy remains uncertain. However, many investors are looking for alternative spots to develop their portfolios. One of the top choices for a number of reasons is real estate. This exciting field offers both obvious and lesser-known benefits that make it a great bang for your buck. But it’s not suitable for everyone. Read on for an explanation of the pros and cons of real estate investing.

Benefits of investing in real estate

Many people know some of the benefits of investing in real estate. But unless you take a closer look, you might be missing out on some lesser-known but equally valuable benefits.

Several ways to earn money

Real estate investments offer many ways to make money, whatever your strategy.

For example, owning a rental property doesn’t just make you money through the cash flow you receive each month after paying the property’s mortgage and bills. It also quietly earns money through appreciation as the property increases in value over time. At the same time, you accumulate additional money each month when you make the mortgage payment. This allows tenants to repay the principal of the loan.

Fiscal advantages

Not only will you be able to deduct the actual expenses necessary to operate and maintain the property, but you will also be able to write off depreciation.

This expense on paper costs you nothing out of pocket but can reduce your tax bill. When you sell the property in the future, you may also be able to take advantage of reduced capital gains tax rates. Alternatively, you can defer taxes entirely by purchasing a similar property in what’s called a 1031 exchange.

Protects against inflation

Inflation has been a major talking point over the past few months as prices continue to rise across the economy. These conditions are ideal for holding a tangible asset such as an investment property.

As prices rise, the value of your property tends to rise as well, saving you much of the pain of inflation. At the same time, you’ll pay off your loan in “cheaper” dollars, usually at a long-term fixed rate. As rents and other income increase over time, your mortgage payments will generally stay the same, improving your returns.

Diversify your portfolio

Too often, people invest all their nest egg in the stock market, bonds or similar financial instruments. This means that they have tied their long-term wealth entirely to these financial markets.

Real estate investments provide essential diversification, essential to any balanced portfolio. Few people can truly avoid economic downturns, but having diversified investments means you can soften the blow and come out the other side as strong as ever.

You don’t need a lot of money to start

Many people may overlook real estate, thinking they don’t have the money to strike a deal.

This is not necessarily the case. Besides common strategies like investing in rental real estate or house flipping, real estate investors can also engage in low or no down payment schemes like wholesale real estate.

Those who sell real estate wholesale do the legwork to find good deals. They usually do this through aggressive and creative marketing to homeowners who may not even initially consider selling their home. Once they find a willing seller, they connect him with a previously identified buyer who has the money for an investment property but no time to hunt for bargains.

For his work, the wholesaler usually receives remuneration. They profit by selling the contract on the property to the end investor at a slightly higher price.

As you can see, this requires little initial investment from those interested in wholesale real estate, other than marketing costs and time spent networking with potential buyers and sellers. This can be an ideal way for potential real estate investors to generate capital. They can do this while developing their relationships in the local market.

Newbie real estate investors can also use more passive means like REITs, which are essentially mutual funds that hold real estate investments. These are essentially hands-off investments, but generally yield the lowest returns with the fewest ancillary benefits.

Disadvantages of investing in real estate

Like any investment, real estate is not perfect and is not suitable for everyone. Before rushing into the world of real estate investing, consider the following to avoid a potentially unpleasant surprise down the road.

Many strategies require a lot of money

We mentioned wholesale real estate above as an example of a low or no capital investment strategy. However, wholesaling is not for everyone and all situations, and many other strategies require a significant amount of money.

Depending on the type of property and location, this can range from five figures to six figures or more. For some, this is not an unreasonable amount of money. But for others just starting out, it can prevent them from taking advantage of bargains when they arise.

Investments are generally not easily “liquidated”

Most real estate investments are long term. If you put ten or twenty thousand dollars on a mortgage, you usually can’t access that money without selling the property, which ends the investment.

In some cases, you may be able to take out loans or lines of credit to access the equity in properties without selling. However, these come with various fees and restrictions and take time to process. Therefore, real estate investments are not the best choice for those who may need quick and easy access to their money later.

Time (or extra money) required

While many investments can grow on their own with little management or involvement, real estate is not one of them. You will be responsible for finding tenants, performing maintenance and other day-to-day requirements of owning a property. Some may see their enthusiasm for real estate investing wane after the third call in a week for a clogged toilet or a locked out tenant.

Of course, property management companies exist precisely for this reason, allowing professionals to take care of these things so you don’t have to. But you’ll have to give up some of your income to pay property managers, who typically take a portion of the rent they collect for you each month.

Many things are beyond your control

You can do everything right when it comes to finding the right property, choosing the right tenant, and managing right. Yet real estate investors face many factors beyond their control.

The city in which your property is located may change rental rules or zoning. Similarly, a huge new housing estate could see the light of day nearby. The ideal neighbors of your property can sell their house. They could be replaced by revelers who leave their lawns covered in trash. These are just a few inconveniences to which you are exposed and which you will often have little notice or means to avoid.

Real estate investing: a great way to grow your money… but not for everyone

Those looking to grow their portfolio will find few better ways than real estate investing. From buying long-term to wholesale real estate, there are many strategies that investors can adapt to their financial needs and resources.

Still, it’s crucial to remember that real estate may not be suitable for all investors. You should carefully assess your situation and any potential offers before jumping in. Who knows ? You may be about to make an investment that will change your financial situation forever!

By Deanna Ritchie

The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are intended for general informational purposes only and should not be construed or construed as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or other personal finance advice. Epoch Times assumes no responsibility for the accuracy or timeliness of the information provided.

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