Investing in real estate is one of the most popular choices for a lot of people out there. However, once you start digging a bit deeper into this concept, you’ll find that it has both advantages and downsides. This may confuse a lot of potential property investors who will be left questioning whether all of this is worth it. To answer this question, you need to look at both the pros and cons and make up your mind whether this is an investment that’s worth your money. With that in mind and without further ado, here are five pros and five cons of investing in property.
Generating Passive Income
The first massive advantage of investing in property is the opportunity to generate passive income through rent. This is a possibility with both residential and commercial property, and it’s something that you need to take into consideration. Rental income can help you improve your cash flow, regardless if you’re running an enterprise or a household. Most importantly, you can use this income to pay off the property through monthly credit payments. However, we’ll talk more about this later on.
One of the reasons why so many people invest in real estate is since it brings them so many tax benefits. First of all, if the place is listed as your permanent place of residence for at least two of the last five years, you can qualify for a capital gain that can allow you to be taxed less once you finally decide to sell the place. Then, the property is one of the assets that gets hit by depreciation the hardest. With the help of reliable quantity surveyors, you can maximize the advantage that you reap from this concept. Other than this, you also gain access to various deductions and 1031 exchanges.
Great Long-Term Investment
Regardless of buying a home or a business headquarters, this is an excellent long-term investment. First of all, you get to save money on rent/lease. Sure, you still have to make monthly credit payments; nonetheless, once you’re done, the place is all yours. You also have much greater stability and freedom to customize the place, which shouldn’t be underestimated.
Investing In The Future
Keep in mind that, for whatever reason, you might need equity in the future (regardless of whether you want to use it as collateral or additional investment capital. In other words, it’s an investment in your entrepreneurial plans. In a scenario where you want to maximize your income, you can pivot and turn it into a specialized venue. For instance, you can turn it into a vacation rental or a wedding venue. Nonetheless, this requires an additional investment.
You Can Leverage Your Capital
Finally, one of the biggest advantages out there is the fact that you can use a smaller down payment to acquire an invaluable property. For instance, you can pay about $60,000 to get a hold of a $300,000 home. Later on, as we’ve already mentioned, you can use monthly credit payments can come from rent (at least partially). This is a cunning use of your resources and options.
The Initial Cost Is Quite High
The first downside is the fact that it may take you tens of thousands to make the down payment. After all, where do you get the initial 20 percent of the property’s value? Can you even qualify for such a loan (under favorable terms)? The property itself will probably cost you over a million for decades, which is also a consideration that you’ll have to make.
Selling The Place Is Not As Easy
There are some flaws that you might be unable to see before buying the place. Later on, they may become more apparent, which is something that will make it hard to sell the place. To do so, you have to either make a major investment in the place or be forced to sell it for a lot lower price under pressure. This results in a horrible net result.
Rental Property Can Be Expensive
Managing a rental property can be a lot of work. For instance, finding the right tenants is not an easy task, seeing as how everyone acts friendly when talking to their potential landlord. Making a lapse of judgment here can result in getting a tenant that will later damage your property and leave. Also, the vacancy is quite expensive, seeing as how you have to pay taxes and utilities even when you don’t have a tenant.
You Might Have To Make Additional Investments
Sometimes, you’ll have to invest some extra work, and improving property can be expensive and exhausting. It also requires you to deal with contractors and construction workers, which is (let’s face it), not an experience that anyone is looking forward to. Add to this regular maintenance and inspections of the place, and you might get an idea of just how exhausting and expensive this experience is.
The Value May Go Down
Sure, the value of your property is supposed to go up, but there’s also a likelihood that it might take the opposite turn. After all, we all remember what happened with the real estate market in 2008. On the other hand, making this stance is counter-productive. Risk of a trend going down is something that can happen in literally any industry, and it’s a chance that you’ll have to take if you decide to invest.
So, is it worth it or not? It depends. There are so many factors and variables, and every situation is completely different. The three most important factors here are your budget, your expectations, and the options that you’re presented with. If all three of these things align, you might make the best investment of your lifetime. If not, you shouldn’t feel pressured to invest in real estate just because other people have positive investment experiences or because it all looks good on paper.