Investing in real estate involves the purchasing of properties to increase your assets and possibly profit from this action. Since it is considered to be less risky compared to other investments, real estate acquisition can be a great addition to your investment portfolio. It is also known to be a lucrative source of income, as many successful investors have established a large portion of their wealth with it.
Given its dependable reputation and high returns, you might be thinking of investing in real estate. However, before you start purchasing properties, you may want to seek the assistance of a real estate agent. A real estate agent is equipped to help you find the best available properties through their networking skills and in-depth knowledge of the real estate market. Many agents also make use of technology to encourage efficient transaction processes. If you’d like to know more about the digital tools that real estate agents use to sell properties.
It is also important to consider the benefits and drawbacks of real estate investment before making your first purchase. In doing so, you can better prepare for any concerns that may arise, while taking full advantage of the rewards that can be gained from this kind of investment. If you are interested in learning more, below are some pros and cons to take note of when investing in real estate.
The Pros of Investing in Real Estate
Investing in a property can provide you with a steady flow of income over time. Since it is a tangible asset, it will always carry value. With real estate, you can be assured that the worth of your investment will not drop to zero at any given moment. Below are a few other benefits that you can look forward to:
Real Estate Appreciates in Value
As the population grows, there will always be a demand for property to accommodate housing needs and businesses. Since land is essentially a limited resource, the value of property increases along with its demand. As a result, most properties have the potential to appreciate in value as time goes by, usually by around three to five percent each year based on its location. This is particularly true for properties that are situated in desirable areas. Making the right renovations to any property can also encourage an appreciation in value.
Due to its high demand, real estate also offers a hedge against inflation. While the value of other investments can drop from increased inflation rates, your property’s value and rental costs can actually increase. This means that you can earn more from your investment due to inflation, rather than the opposite.
Earn Passive Income through Steady Cash Flow
One of the main purposes of investing in real estate is to manage and develop properties so as to profit off this development. Renting out your property can generate a steady flow of monthly income or “cash flow.” Although you will have to deduct the costs of a property’s maintenance and utilities, you could still gain plenty of extra income to grow your finances over time.
Gain Eligibility for Many Tax Benefits
Real estate investors can have access to a number of tax benefits or deductions. This includes deductible mortgage interest, property taxes, and even operational expenses. Another benefit that can be gained is tax depreciation. This means that you can decrease the amount taxes paid for depreciable assets—in this case, your property—by slowly allocating their expenses throughout their useful life. It usually covers the period of twenty-seven years for residential properties and thirty-nine years for commercial properties.
The Cons of Investing in Real Estate
It is important to note that real estate is a long-term investment and its returns are not immediate. From purchasing the right properties to shouldering the costs of their maintenance, investing in properties requires a fair amount of time, effort, and money. Below are some of the caveats to consider before investing in real estate:
Real estate investments do require quite a bit of money. Some expenses to consider include a property’s initial down payment, closing costs, mortgage, and ongoing maintenance fees. These costs could take a toll on the value of a property. This is why entering the real estate market means that you are committed to making a long-term investment. The longer you hold onto a property, the better your returns will be.
Despite the passive income and tax benefits that real estate investments have to offer, you still need to maintain and manage the property itself. This includes shouldering any costs for repairs, cleaning, and renovations. You will also need to be present to attend to the needs of your tenants if you prefer a more hands-on approach to managing your property. If you are planning to offer long-term rentals, you may also have to screen through potential occupants. This is to ensure that you pick the right tenants who will pay their rent on time and properly care for their part of your property.
While there are some drawbacks to investing in real estate, if you are in it for the long run, the benefits can certainly outweigh the disadvantages. If you are looking for a reliable source of income and have enough money to start your first investment, then entering real estate can be a worthwhile decision that can earn some high returns.