Most people fantasize about achieving financial freedom and believe that investing in real estate is their ticket out of the rat race. But the truth is, every investment opportunity comes with unique benefits and drawbacks, so you’ll need a strategic approach to make sure that investing in real estate is right for you.
On the upside, commercial real estate investment has perks that are unparalleled by other forms of investing. For instance, you can reap the benefits of passive income, portfolio diversification, and appreciation from the property.
However, the costs of investing in real estate may be steep, depending on how you intend to profit off the property. So how can you tell whether real estate is a good investment for you? To learn more about the benefits and potential drawbacks of investing in real estate, read on.
What Is Real Estate Investing?
If you’re interested in investing in real estate, there are several different ways to invest that may interest you. When most people consider a real estate investment, they think of purchasing a single-family home and renting it out. However, others may prefer to buy commercial properties in the form of a strip mall to collect monthly rent from businesses like restaurants, boutiques, and salons.
Those with limited financial resources may prefer to start investing in real estate with wholesaling, which is the process of finding homes under contract, then connecting interested buyers and sellers. From there, wholesalers collect the difference in profits, much like receiving a finder’s fee.
The Benefits of Real Estate Investments
Growth Potential
The primary benefit of investing in real estate is the potential for growing your income over a long period of time. If you own a property, you can rent it out and build equity in the home over time. Although appreciation and cash flow aren’t guaranteed, research into the local real estate market can minimize your risk and put you in a good financial position to profit on an investment.
Furthermore, real estate generates passive income and provides you with the ability to leverage these funds in the future, meaning that you can use the money that tenants put into your property to make other investments that will increase your net worth. As the price of your investment increases, it will protect you against inflation.
Portfolio Diversification
Serious investors understand that one of the worst things an investor can do is put all their eggs in one basket. While stocks and bonds can be lucrative investment opportunities, real estate is a much more stable investment that offers several advantages when it comes to portfolio diversification. Smart investments in real estate will enable you to grow a robust investment portfolio that benefits you for years to come.
Limited Supply
There is only so much land and property in the world, but that’s actually a good thing — limited supply will work in your favor as a real estate investor. For instance, housing inventory is currently at an all-time low. As a result, homes are in high demand and selling well above the asking price.
The Cons of Investing in Real Estate
Fixed Expenses
While investing in real estate can pay off big time, many fixed expenses come with long-term ownership of a property. For example, property taxes vary greatly depending on the area in which you invest. Before buying a property, you should look at the costs after closing escrow. Furthermore, property owners are also responsible for pest control and waste management expenses.
Maintenance Costs
Although you may be earning money off an investment property, keep in mind that you will allocate a portion of your earnings to maintain the property. Before committing to an investment property, consider the following maintenance costs:
- Routine maintenance costs are required to maintain the property’s curb appeal. These costs include cleaning, trash collection, and lawn maintenance.
- Seasonal maintenance costs are dependent on your location. As the landlord, you may be responsible for the costs of snow removal, raking, mowing, pruning trees, and cleaning gutters.
- Appliance maintenance costs mean that you will need to hire someone to maintain stoves, washers, dryers, refrigerators, and HVAC systems as necessary.
- Emergency maintenance costs are those that you may not anticipate. For instance, a tenant’s heater may stop working in the middle of winter, or pipes could burst in the middle of the night.
- Flooring maintenance and painting should be completed regularly to brighten your property. If tenants cause more damage than anticipated, you may need to take a percentage of their security deposit and put it towards repairs.
Problematic Tenants
You may have heard horror stories about landlords going to court with tenants that refused to pay rent or destroyed their property. Most people believe that this won’t happen to them, but it is a risk factor that anyone interested in a long-term real estate investment should consider. When issues arise between tenants and landlords, it can negatively impact your cash flow while also leaving your property in poor condition. Before investing in real estate, research the laws in your area. If these laws favor the tenant, it may not be wise to invest in that area.
Or, for a simpler solution, consider a shorter-term form of investing such as real estate wholesaling, which neatly sidesteps drawbacks such as maintenance costs and tenant management.
Maximize Your Investment Opportunities with Call Motivated Sellers
When you choose to invest in real estate, you’ll need to find suitable properties. If you’re interested in acquiring more qualified leads to turn into investment opportunities, our team of cold calling experts at Call Motivated Sellers can vet sellers and help you find properties with high potential.
Call Motivated Sellers is an American-based real estate cold calling service that can help raise your sales and provide hot leads in every season. We have years of experience cold calling in the real estate industry, along with access to the best information for buyers, sellers, and agents to help you close more leads.
If you’re ready to leverage the power of cold calling, Call Motivated Sellers is here to help. To learn more about the services we offer, contact our team today, and let’s talk!