Real Estate Investing: The Good, Bad, and Ugly

As seasoned Realtors® and real estate investors ourselves, we often get the question, “Is real estate investing a good idea?” If you’ve been asking yourself this question, this is the blog post for you! We’ll go over a few pros and cons for considering investing in real estate to make extra money and increase your net worth.

Owning real estate is the American dream, and owning additional properties is a tangible way to increase your wealth over time.

Let's first talk about the pros of making this decision and how to do it.

Pros of Real Estate Investing

First, you will need a Realtor® to help with finding and purchasing a second home. You will want to be clear about your plans because how you use your second home affects the price point of your search, your financing options, and potential ongoing costs — all of which a Realtor® can help you navigate.

The good thing about investing in real estate is that your investment will appreciate over time if it is a well-chosen home — buying the right property at the right time.

You can make some improvements to the home to increase equity and rental value so you’re always in a position for profit.

There are unique tax benefits that will allow you to grow your wealth over time. The government offers tax benefits to real estate investors. The income you make from renting is not subject to self-employment tax. Also, your expenses for operating your business, i.e. rental property, can be a tax write-off like maintenance expenses, management expenses, and more.

Rental properties can provide a steady cash flow — subtract your mortgage and expenses from what you receive from rent and what's left is your cash flow.

By being a good landlord, the rent you receive pays your mortgage down each month and builds up equity in your investment increasing your net worth each month.

Cons of Real Estate Investing

Owning a second home is costly to purchase and maintain — it requires money to make money. In the beginning, you will need a down payment, closing costs, and cash available to repair and update the property to maximize rental income.

Second mortgage options are based on how you plan to use your second home. Some lenders view vacation rentals as a riskier investment. In some cases, you will be required to make a larger down payment. Always talk to a reputable lender to maximize your position for a purchase!

You will still be obligated to make the mortgage payments, whether the property has a tenant or not. Plan your budget to consider this, so it doesn't become a costly mistake.

Managing a rental can be time-consuming and overwhelming if you are the only one taking care of it. However, you still have the option to work with a property manager who deals with all the leasing, financial, and maintenance details month over month.

Dealing with tenants can sometimes go wrong, costing you money and maybe even time in court to rectify the problem. Your renter doesn’t own the home meaning they can choose to stop paying or damage the house or abandon the lease — all of which ends up in your lap to deal with.

No matter if you’re ready to purchase your first investment property now or if you’re planning for the future, real estate investing can be an excellent way to earn a consistent income and build long-term wealth.

Don’t forget that any opportunity will have some opportunity costs like upfront expenses, finding renters, and other steps to get through before you start receiving cash flow.

 Getting help from a Realtor® and professional property management should be your first step to save you time and money from the very beginning.