Many investors have heard friends, neighbors and coworkers sing the praises of real estate investing for years. In fact, you may have seen several people grow fairly wealthy as a result of smart real estate investments.
Before you finalize your plans to jump into real estate investments yourself, it is essential to get a clear idea about what to realistically expect.
Being Realistic About the Benefits
When you read investment books, you may read blurbs about how real estate has a higher return on investment than stocks, mutual funds, and other assets. Investopedia explains, it is true that real estate could have a higher return, but you also could lose money.
Remember how the real estate bust associated with the last recession. Investors were hit just as hard by those events as homeowners were.
Real estate markets go up and down. And there may be times when a property’s value plummets, and the owner is forced to sell for a loss or hang onto it for many years longer than intended.
Understanding the Challenges of Real Estate Ownership
Even in a best-case scenario when an investment property is generating a double-digit return on a steady basis, understand that this is not an investment that you can take a hands-off approach with. Real Estate Elevated says, “there are strategies for bidding on houses, there are best practices for renovating, and there are formulas for pricing. Investing is not rocket science. But there are a lot of moving parts.”
This isn’t something you can do once and then just sit back and the money will roll in. Tenants will call you regularly for repairs. You may have to ask them repeatedly to pay their rent on time. Severe storms, plumbing leaks and more could damage the property.
Hiring an experienced property manager may be essential. But this does not detract from the financial risks that you may face. This could include various types of property damage or tenant lease violations.
Focusing on the Steep Learning Curve
Another important factor to keep in mind is that real estate investing has a steep learning curve. According to Investor Guide, while you can read several books before you get started, there are many things that you will need to learn as you go. Unfortunately, trial and error with real estate investing can cost you a small fortune.
If you choose to invest in real estate, be prepared to focus intently on your property for a reasonable amount of time. Learn the ropes, even if you do hire a property manager.
Investing in real estate may be one of the best things that you do from a financial perspective. Many people attain considerable wealth through their investments, but many others find the experience to be financially devastating and stressful. Take time to understand what you are getting into before you buy your first property.
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