Andrew Carnegie, a billionaire industrialist, once said that real estate was the primary source of wealth for over 90% of millionaires. According to a report by The Real Deal, real estate investors have been earning an ROI of 8% with single-family rentals (SRFs). However, despite the advantages of wealth generation, portfolio diversification, and tax benefits, real estate is not the best option for everyone. Keep reading to learn the pros and cons of investing in real estate.
Pros of Real Estate Investment Property
There are many reasons to invest in real estate. Some of them are as follows:
Passive Income
Did you know that rent growth for multi-family residential properties increased by over 12% last year? Rental properties can provide you with a stable cash flow of passive income every month, allowing you to spend time building your business or reinvesting the capital to invest in a commercial real estate property such as a shopping center and office building.
Defers Taxes
The best thing about investing in real estate is that you don’t have to pay any tax on the increase of your investment property’s value until you decide to sell it. Real estate also offers several tax advantages and deductions, including property taxes, insurance, repair and maintenance, property management and leasing fee, owner expenses, and mortgage rates.
Hedge against Inflation
The value of real estate increases faster than the rate of inflation. In fact, between 2001 and 2020, the price of median home sales in the United States increased by about 238%, whereas the inflation totaled 41%, making real estate one of the safest investments.
Cons of Real Estate Investment Property
Despite the above-mentioned advantages, investing in real estate has its fair share of disadvantages. Some of them are noted below:
Requires a Lot of Money
Unlike other investments, you need substantial capital to purchase real estate properties. To get the best interest rates, make a down payment of 25% or more.
Illiquidity
Real estate properties aren’t easy to sell, especially if you own a shopping center or office building. It can take at least 2-3 months to sell an investment property.
Property Management
During the rental period, there will be several times when you will be required to fix a leaky roof or a failed water heater. While it might seem like small expenses, the costs can quickly add up, forcing you to debut a significant amount from your savings.
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For most investors, real estate is a great way to build wealth and generate a passive income as long as you research every investment property before purchasing and are willing to hold it for an extended period. Whether your financial goal is to save up for college, retirement, or to become financially independent, investing in real estate is the way to go.
Do you want to invest in real estate right away? Contact Milbrook Properties Ltd to learn about potential multi-family residential and commercial real estate properties on the market.