January 05, 2021 at 10:08am | BBHST Admin

By Kyle Spearin


Real estate investing is a growing interest for a lot of people because it can yield such favorable results. While the average person should be taking an interest in investing at this point, many aren’t sure if real estate investing is right for them. 


As great as real estate investing can be, it is filled with advantages and disadvantages like any other medium. In this post, we will explore the pros and cons of real estate investment.


Advantages

There are many different reasons that investing in real estate is sparking so much interest right now. The reality is that it offers a collection of benefits that really can’t be ignored when it is done correctly. If you have been considering real estate investment as an option, you will be pleased to read about these key advantages that the industry can offer.


Real Estate Can Be Easier

As far as investment strategies go, real estate can be quite a bit easier to understand for the average person. When it comes down to it, real estate can be more straightforward than some other investment strategies. This is largely because it is built on principles that most of us are familiar with and the fact that it’s tangible, making it highly approachable.


Forced Appreciation Through Property Improvement

While traditional investments are largely priced by values that are depicted by someone else, real estate allows you to play a role in your success. When you invest in a property, you can always improve it. This allows you to purchase something for a lower price and increase its value over time. This is fairly unique to real estate investing and works out very well for a lot of people. 


Allows Diversification of Assets

Having diversified assets is one of the most important things that you can do as an investor. You never want to have all of your eggs in one basket. Fortunately, real estate is incredibly forgiving in this regard. You can invest in different properties in different areas so you always have a good chance of success. This makes it more approachable for people who want to mitigate risk in their investments.


Saves on Income Tax

Right now, real estate investment is being heavily supported by the government. This means that there is a lot to gain on real estate investments right now. You can save quite a bit on taxes with this approach if you are savvy and there are plenty of easy guides on how to make this possible.


Real Estate Can Be Financed and Leveraged

Real estate is a style of investment that gives in multiple ways. You can get the full property investment for a 20% down payment or less. The best part is that real estate can also be leveraged for other investments. You can borrow against real estate for other investments as needed.


Disadvantages

Though real estate is full of investment opportunities, it isn’t entirely without its share of troubles. Knowing the disadvantages in this list will help you to make better decisions with your investment opportunities.


Expensive Initial Investment

Investments can vary by quite a bit in size. While you can save on investments in real estate by only needing a portion of the money upfront, the reality is that it can be a sizable investment. Downpayments on homes are not cheap and can require quite a bit of money to get started, unlike other investment types that allow you to start small.


Real Estate Property Is Illiquid

Unlike other investments that can be easily redeemed, real estate requires more of a commitment. You cannot simply redeem your investment immediately with real estate. It can take some time to reap the real rewards that this industry has to offer. However, it can yield a wonderful payoff for those who are in it for the long-haul.


Things Break

One downside of property management is that you are responsible for the property. Over time, things will break on your property. It will be up to you to repair and replace these items as needed. This might mean investing a little more to make a home ready for sale or simply having to replace something for rental tenants. It is another responsibility that comes with this style of investment, so it is important to be aware of what you are and are not responsible when you make an investment.


Dealing With Tenants Can Be Difficult

People are known to create problems from time to time. While some tenants can be truly wonderful and caring, other tenants might not be so sweet. As a property manager, you might have to deal with someone refusing to pay rent, evictions, and other difficult talks. It is up to you to ensure that your tenants are following the rules in place to ensure that your property stays in good order. Unfortunately, it can come with complications from time to time. Some people find this to be difficult to deal with, so make sure that you are prepared to have the hard talks.


Doesn’t Always Appreciate in Value

Real estate can be fairly fluid. Sometimes it can perform very well, other times it might perform poorly. It is not a guaranteed investment and knowing this upfront can save you quite a bit of heartache. Be prepared to understand that the right time for your property might still be on the horizon and can, in some cases, change very quickly. Being informed and educated on the real estate industry can help you to find ways to support your investment and manage other investments as they arise. No investment is entirely without risk, but the real estate industry is subject to its own set of rules, so be aware.


Final Thoughts

Making the decision to invest in real estate can come with a wide range of benefits, but like any other, it isn’t perfect. Consider the good and bad of this investment style, as well as your personal financial situation, to determine what is right for you. 

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