When it comes to investing in real estate, you are making use of your money today in hope that its value will increase and leave you with even more money in the long run. To make a success of your investments, the returns must be enough for you to cover the property purchase, taxes, and other related costs when owning real estate. These include regular maintenance, letting agencies, and insurance. Many people see real estate investment as guaranteed money, but it takes a lot of knowledge and hard work to make it a success.
For anyone who is looking to enter the world of real estate investment, here are some essential things you need to know:
Ways to Make Money
When it comes to real estate investment, you can make money in several ways. It is really important to learn everything you need to know first from expert books or online courses. Real estate is a venture which takes time to master, but as long as you acquire the requisite knowledge and make the right purchases then it can be very lucrative.
Here are the two main ways to make money from real estate:
- Appreciation
When a property’s value increases due to changes in the real estate market then you can sell it for more than you bought it for. Appreciation comes as the result of the local area becoming more desirable, renovations and extensions that you have made, or through general inflation. In times of economic stability, most property experience at least modest appreciation, but in uncertain economic times, nothing can be guaranteed.
- Rent
One of the most common ways to make money from real estate is to rent your properties out to tenants. These are usually people who cannot afford to purchase a house, either because the area they want to live is too expensive, they don’t have the down payment, or their family is too big for a house that they can afford.
Pros of Real Estate Investment
There are many advantages to investing in real estate. It can provide an excellent supplementary income or can be your primary job and can continue to pay you for years to come.Here are some of the main pros of real estate investment:
- Lower Risks Than the Stock Marketways to Make Money: The housing market is not as sensitive to outside factors as the stock market. With real estate investment, your earning potential may not be comparable to that of the stock market, but the consistent and steady increase in earnings is well worth the initial outlay.
- Steady cash flow: With enough rental properties operating effectively, it is easy to generate a reliable revenue stream for your business. Once the properties have been purchased, you can even hire a rental agency to take care of the management.
- Tax breaks: Nobody likes paying taxes and if you can find a way to reduce the amount you have to pay, then that is always a bonus. By investing in the real estate market, you will have some of the costs from your taxes cut, from mortgage interest to property depreciation schedules, and even property taxes.
Cons of Real Estate Investment
As can be seen above, there are many advantages to real estate investment. There are far too many people however who wrongly think that real estate is a guaranteed money maker and that there are no risks at all. There are some potential pitfalls and some serious disadvantages to consider before investing:
- Potential returns aren’t as high as the stock market: Real estate does not follow the “high-risk high reward” rule of the stock market, which means that at least in terms of appreciation, it is very unlikely that you will double or triple your money.
- Real estate investment can be cash-heavy: Preparing enough cash is vital when it comes to creating a steady income stream from real estate. From down payments to money for improvements, maintenance, and agent’s fees, you will need a certain amount of capital to get started. Property cannot be quickly turned into cash as the stock can, so it is always important to manage your cash well.
- Managing tenants and building maintenance is a challenge: Hiring a property manager or managing your property yourself comes with many challenges. Staying on top of everything to make sure that you make money takes time and careful consideration so make sure you can commit enough of your time to oversee your investments.
Real estate investing for beginners might sound simple, but it is vital to first understand the basics of investment, economics, and risks. Buying properties, avoiding bankruptcy, and generating rents for future properties are factors in any purchasing decision that you make. It is wise to enter the real estate world without the essential knowledge needed.
