The Pros and Cons of Real Estate Investing
If you have real estate in your investment portfolio, you reduce your investment risk and add diversity. There are numerous ways you can invest in real estate. Some options include buying and holding real estate property and investment trusts (REITs). Like any other investment, real estate has its pros and cons.
Pros of real estate investment
- Appreciates with time – real estate always has an intrinsic value making it a valuable investment. While a stock can plummet to zero, real estate doesn’t, and it appreciates over time.
- Unique tax benefits – while rental income isn’t subject to self-employment tax, the government also provides tax benefits to real estate investors allowing them to grow their wealth in the long term.
- Steady cash flow – if you have rental properties, you can enjoy passive income for years. This means you can focus on other investments while enjoying a steady cash flow from your rentals.
- Leverage – are you looking to increase your return on investment? You can use your real estate property as leverage to get a loan and invest in other businesses. You can increase your wealth with minimum capital and risks if you do it right.
Cons of real estate investment
- Capital money – to get started in real estate investment, you need money for the down payment, closing costs, repair, and property maintenance. Also, after owning the property, you will pay insurance, taxes, mortgages, and maintenance costs.
- Time – real estate investment might take time before materializing. If you make the wrong choice or are impatient, you can lose a lot of money. Always invest in real estate as a long-term strategy. Selling property takes time, and transaction costs are very high compared to stocks.
- Unique risks – while real estate has great returns, it has unique risks like increased liability, buying property from the wrong people, or at the wrong time. You can also get over-leveraged, thus straining you financially.
Before investing in real estate, it is vital to know the pros and cons to make the right choice. With such knowledge, you can limit financial losses and possible scams.