Why is Investing in Property a Good Idea?

If you buy and hold real estate, you can earn monthly cash flow renting it out. Cash flow is the net income from a real estate investment after mortgage payments and operating expenses have been made. A key benefit of real estate investing is its ability to generate cash flow.

This increases the profits from owning real estate since you aren’t relying only on the appreciation but the monthly rental income. It may seem overwhelming to buy investment real estate and find quality tenants and manage the property, but there are many available resources to help you.

Residential properties can generate income year-round. Investing in real estate is a great idea if you are in it for the long haul, not a quick return. 

Your best bet is investing in residential properties that produce rental income year-round. Just make sure you understand all of the associated legal fees and are prepared for unexpected costs.

Real estate investors make money through rental income, and appreciation. Real estate values tend to increase over time, and with a good investment, you can turn a profit when it's time to sell. 

Rents also tend to rise over time, which can lead to higher cash flow. Unlike stocks or bonds, you can force the real estate to appreciate. On average, real estate appreciates 3% – 5% a year without you doing anything except maintaining the home. 

The right investment will continue to appreciate. Real estate is real, and it’s always a good idea to put your money in real assets. But let me be clear: That doesn’t mean that all real estate is a good idea.

Stay away from low-income areas and single-family homes. But even those assets are probably a better place to store your money than letting cash depreciate while sitting in the bank.

Another benefit of investing in real estate is its portfolio diversification potential. The addition of real estate to a portfolio of diversified assets can lower portfolio volatility and provide a higher return per unit of risk.

One way to use an investment property’s equity is to use it to grow your real estate portfolio. For example, let’s say you have $100,000 equity in a home. You can refinance the mortgage on it, take out the $100,000, and use it as a down payment on your next property.

Real estate is always a great investment because you have more options than with other types of investments. If you invest in stocks, bonds, or a private offering, your success is completely dependent on factors outside of your control.

Real estate returns vary, depending on factors such as location, asset class, and management. With real estate, you have unlimited options. You can buy a house with the intent of flipping it, then rent it if the market turns south. 

If you buy a rental that appreciates in value significantly, you can sell it. Real estate can be refinanced, rehabbed, and rezoned. You can develop it, lease it, subdivide it, or add parcels to it.

Real estate offers unlimited options. At most, your options are to hold or sell. These are just a few of your options. This flexibility is one of the reasons it has created more millionaires than any other asset class.

If you want to invest in real estate, but aren't ready to make the jump into owning and managing properties, you may want to consider a real estate investment trust (REIT). You can buy and sell publicly-traded REITs on major stock exchanges. 

REITs are companies that own, operate and finance income generating real estate assets. They are popular as they are regulated and offer liquidity as they are publicly traded.

There’s an opportunity for greater and more consistent returns with real estate than with other investments. The large number of new properties each year is a testament to the growing real estate market. 

Supply follows demand, and demand is continuing to rise. Populations almost never decrease, which is why the need for housing increases year over year.

If buying real estate and renting it out is too hard for you, there are many other ways to invest in real estate, including:

• Buy an undervalued property (fix and flip)

• Be a wholesaler working as the middleman between buyer and seller.

• Buy a 1 – 4 unit property, live in one unit, and rent out the others using the rental cash flow to cover your mortgage.

• Invest in a Real Estate Investment Trust (REITs)

• Inheritance 

There are pros and cons to investing in real estate. Knowing the negatives can help you make smarter choices and protect investments.

No Guarantee

There’s no guarantee a property will appreciate or that you’ll make profits. Many factors determine what happens. Like most investments, real estate almost always bounces back. So if you’re in it for the long haul, you should be on target to make a profit.

Time-Consuming and Exhausting

If you buy and hold real estate, you’ll want to rent it out to make money. But if being a landlord is too much for you, consider hiring a property management company to not have the headache of managing the property yourself.

Tough to Get Financing

Securing financing for an owner-occupied property is usually easy if you have decent credit and stable income. When buying a home to fix and flip, lenders aren’t as generous with their financing options.

They often have stricter requirements, including higher credit scores, lower debt-to-income ratios, and much higher down payments. For example, many lenders require 30% of the purchase price as down payment to secure financing even if you have good credit.

No Guarantee of Cash Flow 

There’s no guarantee that you’ll always have tenants. If your tenant’s bail on you, the mortgage and expenses fall on your shoulders. If you have a mortgage, you must keep paying it even though you aren’t receiving rent. You need a solid emergency fund and be stable in your finances to handle any situation that may come your way.