Investing in real estate is no simple task. It is a complicated process due to the financial, legal, and due diligence obligations that come with owning, renting, or flipping houses. The risk can be high — plenty of people have filed for bankruptcy because of even one bad investment. It requires thousands of dollars to even begin investing (you are buying a house, after all). If you don’t know what you’re doing, real estate investing can be a dangerous game.
But don’t let that scare you. So long as you’ve done your research and know exactly what you’re getting yourself into, you’ll get the hang of it fairly quickly and you just might make some money in the process. Usually, when it comes to investing, the higher the risk, the higher the reward, and that is true for real estate. If you play your cards right, you can make a lot of money investing in real estate. Here are a few of the risks and rewards to consider before investing in real estate.
- If the market flops, you won’t be able to sell your real estate like you would a stock. Because houses are such a large investment, it will be much harder to sell them in a bad market, which could leave you stuck with a house that you end up not being able to pay for.
- Unlike stocks, you won’t be able to sell only a portion of your real estate. With houses, it’s all or nothing, so you need to be sure of what you’re getting yourself into.
- Entry and exit costs are high. So high, in fact, that you’ll likely need to borrow money to buy your first investment house.
- If you don’t find anyone to reside in your rental property, you’ll have to pay all the expenses.
- Some tenants can be difficult to work with. You might deal with people who do not pay on time, damage your property, smoke inside the house, and cause other issues.
- You will get a steady, passive income.
- In addition to the money you get from your tenants, your property will increase as real estate values do.
- The interest you pay on investment properties is tax deductible and the income you get from your tenants is not subject to Social Security tax.
- The housing market is usually more stable than the stock market. However, there sometimes are exceptions to this, such as the housing crisis of 2008.
- Success brings more success. Once you get your first rental property established, it won’t take long to generate enough income to buy more rental properties, which will then generate more income, etc.