Pros and cons of investing in real estate
Investment in real estate is one of many people's most sought-after and profitable ventures. It is among the safest and most appreciable investment forms, especially those who want to hold the property for an extended period.
Despite its innumerable and apparent advantages, real estate investing for beginners can be a little challenging as it comes with several disadvantages.
In this article, we will be discussing the pros and cons involved with property investment. Being aware of these can help with your wealth management regime and provide you with some insights into investing in the real estate market. Keep reading to learn about the pros and cons of real estate investing.
Pros of Real Estate Investment
It generates steady cash flows: If someone owns a property and it's being rented out, it can create a passive income stream through monthly payments. Some landlords keep providing additional charges like storage, parking, etc. So, considering the offsetting cash flows like- mortgage, taxes, and maintenance, these inflows in the form of rents can be substantial.
It is appreciable primarily: Mostly, property investment is considered an appreciable asset. Depending on the area, property type, and local demand levels, the property's value tends only to go up in most cases. This is an impeccable benefit of investing in the real estate market, as most other investment options have a fair chance of depreciation.
It saves you taxes: Yes, real estate markets provide you with a depreciation tax shield, and you can claim the depreciation expense on your real estate investment without cash outflow. It further reduces the amount of your taxable income, ultimately saving you from a portion of taxes that you otherwise would have paid.
It provides you with an inflationary hedge: Almost every other form of investment is impacted by ongoing increases in inflation, as the latter tends to cut into earnings generated from these investments. Real estate investment has historically followed the trend of appreciating faster than inflation. Perhaps this is why most wealth management experts consider real estate investment to hedge against inflation.
Cons of Real Estate Investment
Despite having a lot of advantages, the Real Estate investment also has a few disadvantages, which we all should be aware of. Here are some of the cons.
Real estate investment is a long grind: Despite being mostly appreciable, returns from real estate investment usually accrue over a more extended period, which happens if you made the purchase carefully. Besides, managing your properties also takes a lot of time. So, all in all, real estate investments eat up a lot of time.
Impacted by rent control: If you have invested in residential properties, there is a considerable risk that the local governments will impose rent controls, influencing your potential to raise rents. Of course, you can apply for a targeted rent increase but rarely do the authorities grant these requests.
Lesser liquidity: Generally, real estate investments offer lesser liquidity, as these are pretty difficult to sell off within a shorter period. This is a big problem, especially if there is an urgent need for a significant sum of cash.
The Bottom Line
Wealth management can be a complex task for many, especially for real estate investing for beginners or even experienced investors. Here are some pros and cons that you should consider before investing in the real estate market. Therefore, before you invest your hard-earned money into real estate, it is indispensable to consider several factors for minimizing the risks. Keep in mind that generally, real estate investments offer good returns, but after a long grind.
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