Real estate investments can be a lucrative means of income generation, though they require an ample commitment of time and capital to pay off. Including real estate in an investment portfolio can diversify it and ultimately reduce risk. While some options can be passive in a manner akin to holding stocks, involvement is necessary for the upkeep of rental properties. It can be challenging to maintain a real estate investment portfolio, but for those with a bit of knowledge, it can turn into a great form of passive income.
Pro: Consistent Cash Flow
Real estate investors leasing properties will find that cash flow is more predictable than other investments or businesses. Despite a downturn in recent years, the stability of real estate cash flow can help support an individual during difficult times. Additionally, the largely passive nature of investing allows for extra time to work on other projects.
Pro: Tax Benefits
The IRS grants certain advantages to investors in real estate, namely depreciation. Even if your real estate assets are increasing in value, an investor may only pay at the rate they would’ve paid years ago. Additionally, real estate properties are not subject to self-employment taxes. However, anyone interested in tax law should consult a professional before assuming that they qualify for any tax breaks.
While anybody has the ability to make informed decisions about their investments, it can be difficult when a company’s stocks are tied to dozens of factors outside of an individual’s control. With real estate, the investor makes decisions and can ensure that they end up with reliable tenants and hunt down properties likely to deliver a high ROI.
Con: Startup Costs
The primary barrier to entry for anybody looking to get into real estate is the initial startup cost. Between down payments, taking on mortgages, and home repairs, it can be daunting to start an investment portfolio without the necessary capital and knowhow to get yourself off the ground.
Con: Slow Turnaround
Stocks, though often unpredictable, can be easily bought and sold. On the other hand, real estate properties are non-liquid assets that are extremely difficult to turn into cash in the event of an emergency. Selling a property is a lengthy process with associated transaction costs you need to be prepared to foot.
When you own property, you assume risks for it, including anything that a tenant might do to it during their rental period. Additionally, if an accident occurs on your property, you may be held liable. Properties themselves may be relatively stable investments, but external factors that you are responsible can throw a wrench in your monthly budgeting.
To invest or not to invest?
The appeal of real estate investing is the ability to generate consistent passive cash flow while leaving leeway for other businesses and investment opportunities. That being said, it’s not a pursuit for everyone and requires ample research to do successfully. Regardless, anybody that can properly leverage real estate can take their career into their own hands and produce a positive outcome.