Should You Invest in Real Estate? Navigating the Peaks and Valleys of Investment Property

With the current ups and downs of the stock market you may be asking yourself ‘Is there a better place to invest my money?’ Investing in real estate may be a great avenue to pursue. I have found it to be fairly easy to manage, and less time consuming, and intimidating than you may think. However, I have also had to deal with some very difficult situations, from evictions to illegal marijuana grows. If not well managed and planned for the negative sides of real estate ownership can drag down your returns. Read on to determine if the risks are worth the rewards for you:

Benefits

1. Cash Flow:

The monthly income generated by the rents minus the expenses of the property. While real estate investing is often not as passive as many investors hope, the ability to make cash flow from your rentals can create a substantial amount of income for any real estate investor. These cash flows can often work to supplement your income or replace it entirely if you have enough investments

2. Appreciation

Beyond getting monthly rent checks, the property value is often going up in value increasing the returns for the investor. Since many investors leverage the property they often gain even more in appreciation. For example if you were to put $100,000 in the stock market a 10% return would equal $10,000. Verses, if you were to put $100,000 or 20% down on a $500,000 property and it was to appreciate 10% that would be a return of $50,000.

3. Leverage

As mentioned in the previous section, many investors borrow some portion of the money used to purchase a property. The rents received by the tenant are then used to pay down the mortgage. This means that with each mortgage payment the investor is also increasing their overall return.

4. Tax Advantages

Real estate investing has many tax advantages including the ability to sell without paying capital gains tax if you have owner occupied the property for at least 2 of the last 5 years. If you have not occupied the property, you may be able to defer the tax if you sell using a 1031 exchange into a like kind property. There are also options to depreciate the value of the property over time and use this to your tax benefit.

Downsides

1. Time consuming

Many real estate investors like to talk about passive income when it comes to real estate investing. Depending on the property it may be relatively passive, especially if you hire a good property manager. However, a real estate investor should never go into rental investing if they do not want to do any work. There will always be decisions to be made and problems to deal with that can only be done by the property owner. If you would prefer a completely hands off approach investing in other forms of investment may be a better option. For more information of other forms of investing see my article___.

2. Risk

Every investment comes with some amount of risk and real estate is no different. There is always a chance that a large problem comes up at the property, a catastrophic event happens, rents or property values change. All of these items need to be carefully considered before deciding to invest in real estate. However, these risks can be mitigated by making strategic decisions in the properties you purchase and budgeting for big ticket items.

If you are ready to learn more about real estate investing get in touch. I have been helping investors and business owners to acquire and lease real estate for over a decade and would love to help you too.