Things You Need To Know When Investing in Real Estate

Jan 10, 2021 - 13:10

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Things You Need To Know When Investing in Real Estate

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Besides having many benefits as seen in this article, real estate also has some disadvantages for investors. This, therefore, calls for a proper weighing of both advantages and disadvantages before deciding on what type of real estate to invest in. some of these disadvantages are discussed below.

Capital requirement

Acquiring a property requires one to have some ready cash to use as a down payment. This money can be sourced from loans or mortgages. This can be really hard for someone who is bankrupt. The money will also be needed in upgrading the property and also to make repairs so as to maximize the rental income. More money will be needed to cater for the ongoing expenses like insurance, mortgages, property maintenance among others.

Handling tenants can be problematic

The cash flow can be really affected by tenants who may fail to remit their rents or leave the property in a poor condition. When evicting defiant tenants, they might cause property damage which may add more expense on the property’s owner. In case of a legal disagreement with the tenant, a lot of resources and time are wasted to solve the dispute.

Real estate is a long-term investment

Since real estate is a tangible asset and can’t be quickly liquidated, an investor should have a long time strategy for purchasing a property. It takes a lot of time to sell out the property. The property also cannot be depended upon in case of an emergency need for funds.

Property maintenance and management

After the acquisition of property, it's necessary for its upgrading and repair as well as regular maintenance. The management cost adds up to the expenses as well as reducing the rental income. This is worse where there are long periods of vacancy.

Capital gain tax is applicable

This is the tax that is charged when the property is sold at a higher price than it was acquired. This adds to the cost of transactions making it more expensive.

Professional help is required

Acquiring the right property, completing the buying process which requires a lot of documentation call for professional assistance. A legal advisor can be contracted to facilitate the ease of the process. Management of real estate also requires people who are qualified. In the long run, this adds up to the expenses thus reducing the rental income.

Time commitment

Acquiring the right property that will yield a good rental income require a lot of prior research, this calls for a lot of time. Prior visits to the property before owning it and price evaluation, are necessary and also requires a lot of time.