Property is generally a great investment option. Property can generate ongoing passive income and can be a good long-term investment if the value increases over time. You may even use it as a part of your overall strategy to begin building wealth.
However, People often assume that investing in real estate is a one-way ticket to wealth and success. There are countless books, blogs, and YouTube videos that tell you this. But what are the drawbacks to real estate investing?
These are some things to consider prior to deciding to purchase investment properties.
START SMALL
Some real estate investors begin by purchasing a duplex or a house with a basement apartment, then living in one unit and renting out the other. This is a good way to get your feet wet, but keep in mind that you will be living in the same building as your tenant.
Additionally, when you set up your budget, you will want to make sure you can cover the entire mortgage and still live comfortably without the additional rent payments coming in.
As you become more comfortable with being a landlord and managing an investment property, you may consider buying a larger property with more income potential. Once you own several properties, it becomes easier to purchase and manage more properties—and earn a greater return on your investments.
BUILDING WEALTH ISN’T INSTANT
The first thing to know about real estate investing is that building wealth takes time. Don’t expect to buy your first rental property and instantly be rolling in the dough. Rental homes cost money and even when you have tenants consistently paying rent, you will still have expenses and a mortgage to pay off.
Real estate investing requires you to play the long game and be patient about building wealth. This is especially the case if you are in an appreciation market, like San Diego. This means the value of your home will increase over time, but you may not be bringing in a substantial amount of cash each month from rental income.
IT CAN BE EXTREMELY TIME-CONSUMING
Owning and managing rental properties is a time-consuming task, especially depending on how many you own. Keeping track on tenants, maintenance issues, and lease renewals can quickly become too much to handle, resulting in more stress for you and less time doing enjoyable activities.
THE RENTAL MARKET
There are many factors involved in renting a house that you may not have experienced before. For one, the market can change greatly based on the time of year and the neighbourhood the property is in. For example, if you’re renting a 5 bedroom home near a college, you need to put the property on the market in the summer months when students are in dire need of a place to live. Attempting to rent in the fall or later can result in you having to lower your rent price and experiencing a longer vacancy.
You will also have to learn how to price your home correctly. Many owners are only concerned about getting the absolute highest rental income they can. While we would all like to earn enough to pay the monthly mortgage payment and then some, pricing your home too high can cause a plethora of problems. It takes a good amount of market research to learn how to set the best rental rate and get quality tenants.
