Investing in rental property is a popular business choice for seasoned entrepreneurs and first-time investors from all backgrounds and walks of life. It’s easy to see why, too.
From the freedom investing offers to the potential for income and growth, real estate investment might seem like a no-brainer or a foolproof option. In reality, for as lucrative and enjoyable as real estate investing can be, it can also be risky if you don’t know what you’re getting into.
Here are five pros and five cons you should be aware of as you move forward with your decision to invest in rental property.
For most, real estate investing is an excellent choice. If you’re willing to put the time and effort into it and be patient while your investment – and business – grows, you’ll likely be able to enjoy residual income, tax incentives, and some of the other perks that being a real estate investor can offer you.
Real estate investment can help you generate a respectable income, especially if you rent out to residential or commercial tenants. If you grow your business to the point where you have multiple properties and you manage them well, you’ll be in a great position to earn some significant cash.
2. Tax Incentives
In most cases, investors can expect to qualify for a 20% deduction on the income they make. There are also some tax incentives for those who rent space to tenants. In addition, you can write off things like travel and professional expenses, property taxes, and more.
Being an independent real estate investor means you have a lot of control over what you do and how you do it. From what you invest in to how you want to conduct property management, you get to make most of the decisions. Given the growing disenchantment with work-for-the-man nine-to-five culture, this freedom is often a powerful draw for first-time investors.
4. Appreciation of Value
Real estate is unique in that it appreciates in value over time. This alone makes it an attractive investment opportunity. To make a good situation even better, you have leverage in that you can earn a profit by way of appreciation on both out-of-pocket and borrowed funds.
5. You’ll Have Help
From online tenant screening products and investment blogs to real estate agents and fellow investors, you’ll be in good company as you pursue this new endeavor. Investing in rental property can be daunting at times, especially if you’re new, but it’s good to know you’ll have people around you who know the ropes and are happy to help.
In real estate investing, there are just as many risks to be aware of as there are rewards. The experienced investor who makes decisions based on sound advice can usually avoid serious pitfalls. However, it’s worth knowing what the cons are before you make any decisions.
1. Tenant Unpredictability
Even though technology has made it easier than ever to conduct screenings from your couch, tenants are still unpredictable. While most thoroughly vetted tenants won’t cause you much trouble, it’s important to realize that entrusting your property to strangers is always risky.
2. Asset Centralization
Diversification is ideal when it comes to investing. However, that option isn’t necessarily available when it comes to real estate. Most of the time, a large portion of your assets will be tied to one or two properties. In the world of investing, that centralization of assets constitutes a fairly substantial risk.
3. Maintenance Costs
Whether it’s renovating a property after you purchase it or simply keeping your rental up to par, maintenance is a huge part of being a real estate investor. After you invest, you become a property manager, and that means it’s up to you to make sure everything is working and aesthetically pleasing. That job requires a lot of time and a fair amount of money, too.
4. It’s Hard Work
The idea of real estate investment being a source of passive income isn’t untrue, but it’s slightly misleading. The term passive income can lead people to think they’ll just be collecting rent and living it up. But the reality is, property management is a lot of work, and you’ll put in just as much sweat equity as you will cash.
5. There Are Pitfalls
Real estate investing is only a good option if you make decisions based on good advice. Working with a real estate agent who is experienced in investing can help make your life a lot easier. They can help you avoid common pitfalls, assess opportunities, and determine whether or not you’re making a safe investment.
Clever Partner Agents are all top performers in their local market. Whether you’re just starting out or you’re a seasoned investor, Partner Agents can guide you every step of the way. What’s more, we know that you’re in this business to make money — that’s why Clever Partner Agents offer a Home Buyer Rebate up to 1% of the purchase price of your new investment property.