The Pros and Cons of Investing in Real Estate

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As people think about ways to generate income (others than just having a job), real estate investing has started to prove a very lucrative options for many. Hence the renewed interest in commercial or residential properties that can be used to generate more money.

Investing in real estate is clearly not cheap and far from simple, but it can bring in some amazing results, if done right.

Let’s try and see which are the main pros and cons of investing in real estate:

The pros of investing in real estate

You have full control over your investment

When you are investing in stocks or Forex for instance, you have little control over the ‘object’ of your investment. But, when you own a property .. well, you own it.

Investing in stock for instance means you own a bit from the company and have nothing to say about how it should be managed. It’s different with real estate, since you’ll call the shots from the day you own it.

This allows you to make repairs, better promote and get the best deals possible.

You get insurance for your investment

Another perk of real estate investing is that the property comes with a homeowner’s insurance or landlord insurance, whatever option you choose for your property.

Should anything go wrong, at least you are being covered and your property won’t suffer devaluation after an accident. Even if the market value shifts, your equity is still there.

More difficult to be defrauded

When it comes to stocks, the chances to be defrauded are bigger than when you invest in real estate. It’s very simple to keep scammers at bay, by physically showing up to inspect the property, run background checks, assess the property before you invest in it. With stock – you have to trust the management and auditors, while there’s little control to have over the situation.

Great inflation hedge

Inflation has been an issue for us for decades now and investing in real estate protects you against a loss in purchasing power of the dollar. Real estate investments have proven over and over again to be a terrific inflation hedge.

A profitable long-term investment

If you plan to rent, you’ll get a good monthly income and it can later be sold for profit in most cases. It’s a good option for your retirement fund, if you are a good real estate investor, you should be set for life.

The cons of investing in real estate

Real estate is not liquid

Even if you have the chance to live in a city where the real estate market is very ‘hot’, it can take months until you can make a sale. This means that, if you need money fast, you’ll either accept a lower price or try get your money from somewhere else.

You are not protected from tax increases

Another caveat is that property taxes can rise faster than you can increase rent for instance and insurance premiums are also bound to increase.

You’ll probably deal with jerks

If you plan to rent, you might end up with the tenant from hell, costing you a lot of wasted time and money.

Neighbors are also people you’ll have to deal with on a daily basis and some might prove to be a pain. Since you cannot just take your home on your back and ride into the sunset, these people will be there for as long as you’ll own the property.

Working as a landlord is time consuming and difficult

When running a rental property, you’ll need to increase taxes, manage the property and spend time / money to achieve success. For some people this is tedious work, since not everyone is cut out to be a landlord.

You’ll probably need to take on a mortgage

For many first time real estate investors, the first unit is bought with a mortgage, since not all people have all this money to pay for a property up front.

This means you are getting in debt and, should anything go wrong, you are risking your financial future.

It costs you money, even if unoccupied

Maintenance fees, taxes, utilities, insurance – these are just few of the costs you’ll need to take care of on a monthly basis if you manage real estate. Even if the unit is unoccupied (or you are working on it for a flip), you’ll still have to pay for these.

These are the main pros and cons for real estate investing. Would you add anything new?