Before you begin investing in anything, you should always do some research to make sure it’s what you want to do. The same goes for real estate investing, especially since it’s a large and long-term investment. It’s easy to find encouragement for real estate investing since it does have a lot of benefits, but it’s just as important to understand what the drawbacks of this type of investing are. To help you make your decision, we’ve compiled a condensed list of the real estate investing pros and cons.
Real Estate Investing Benefits
If you’ve considered diving into real estate investing, it’s probably because you’ve heard about how beneficial it can be. For those of you who aren’t sure, the following benefits are just a few of the big reasons why people get into real estate investing.
1) Steady Cash Flow
Renting out a property means that you’ll be getting steady cash flow every month. Depending on the rental market and how much you need to pay in bills each month, you can end up with a good amount of passive income. As long as you’ve got tenants, you’ll have money coming in.
One of the great aspects of real estate investing is that you’re able to create leverage with other people’s money. By leverage, we mean that it’s possible to buy an expensive piece of real estate using your own money only for the down payment and sourcing the rest of the payment through a mortgage. If you get the building filled with tenants who are paying rent, then you’ll be able to use their rent to continue paying the mortgage. You’ll be using their money while growing your own investment.
Unlike with many other investments, real estate investing gives you full control. It’s up to you where the money goes and how much money is spent. As you’re the one making the decisions, if you know how to employ strategy in a competitive market, you’ll be able to quickly grow your investment while mitigating risks.
Real Estate Investing Drawbacks
As with any type of investment, real estate investing has drawbacks of its own. Before you decide to proceed, it’s important to understand if you can handle the downsides and potential risks.
1) Initial Cost
Even though you can create leverage with other people’s money, you do need to have enough for that initial investment. If you don’t have enough for a down-payment, then you won’t be able to get started. You should also have enough to be able to pay for bills while you’re trying to find tenants. It’s also important to consider that, depending on the state of the building at purchase, you may need to pay for some repairs or upgrades before people can move in.
2) Learning Curve
If you don’t already have a foundation of knowledge in real estate or rental markets, then there’s going to be a steep learning curve for you. Going into real estate investing before learning much about it is a recipe for disaster. If you want to maximize your chances of being successful, you’ll need to spend quite a bit of time learning before getting into it.
One of the biggest drawbacks for many people is the residents that necessarily come with real estate investing. It’s always possible to have an easy time finding tenants, and for those tenants to be people you get along with. However, it’s just as possible to really struggle to find people to live in your building. It’s also completely possible to have people living in your building that will be hard to deal with, that just don’t pay on time (or at all), and that cause damage to your property.
If you believe that the pros outweigh the cons, then it might be a good idea for you to really learn how to do well with real estate investing. If you’re choosing to go that route, then it’s also a good idea to hire a real estate agent. They’ll be able to give you advice and help you choose your first property to invest in!
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