Investment in real estate as an asset adds diversity to your investment portfolio. A good real estate investing strategy can help to achieve this.
Like any other investment, adding real estate in your investment portfolio has its pros and cons.
The Pros of Real Estate Investment
- Appreciation in Real Estate happens Over Time
Appreciation in real estate happens over time, generally at a rate that far outpaces annual inflation. There is always a chance to buy a quality property at a good price with maximum returns, make improvements to increase equity and sell for a profit.
- Beneficial For a Steady Cash Flow
A rental property adds to the monthly income. This is that extra money that is left after all your bills have been paid.
- Real Estate Lets You Use Leverage
Leverage is the use of borrowed capital to purchase and/or increase the potential return on investment. You can use the power of leverage to quickly grow your real estate holdings and accelerate your wealth-building results.
- Building Equity with Real Estate
Using leverage wisely, the rental income essentially buys the property for you. Paying back your loan each month can build equity for you.
The Cons of Real Estate Investment
Just as the advantages real estate investment, there are certain disadvantages also in case of unplanned and non-strategized investments.
- Money is the Prime Requirement
Money is the prime requirement as Money pulls money. There is nothing as “Growing with Other People’s Money”. Maintenance, Taxes, loans & mortgages require some initial money.
- Investment of Time is equally important
Time needs to be spent in learning the market trend and managing the real estate investments. Not doing so, can lead to buying the wrong property at the wrong time or getting stuck with a “problematic renter” who knows to work around the legal system at owner’s cost.
- Real Estate Is a Long-term Investment
Real estate investments should always be done with a longer-term plan. It
can’t be liquidated for cash in case of requirement of emergency funds. It takes time to sell a property.
- Tenants Can Be Problematic
A tenant, who doesn’t pay, leaves the property in very poor condition when they move out, or both; can create lot of problems for the owner.
Real estate can be an incredibly powerful wealth creation strategy, but only if it is done with proper planning and learning. It can be a good source of passive income.