Jul 11, 2022
- Dorothy, The Wizard of Oz
Property appreciates over time. After all, we still haven’t figured out how to create land out of thin air. This means we are limited to the existing supply. People will always require a place to call home, and since supply is a finite resource, people will continue to pay for it. The longer one holds a property, the more likely the value will rise. This is why real estate is designed as a long-term investment.
Monthly rental income from real estate flows in with minimal effort. Saving this income towards other financial goals such as an additional down payment can supercharge your portfolio, and help you better diversify. Real estate serves as an excellent retirement plan, and if planned accordingly can be passed down to future generations.
Real estate is considered one of the most stable investment assets.
In real estate, it takes money to make money. Substantial overhead costs are part of the real estate market. In addition to the capital required to purchase a property outright or down payment on a loan, capital is necessary for closing costs, paperwork fees, taxes, repairs, and utilities. Fortunately, most of these costs are wrapped up nicely into a mortgage.
However, that means your loan increases with interest and rising monthly payments until it is paid off. Regardless of incoming capital inflow like rental payments, you will still need to divert a portion of your income towards paying the loan.
Furthermore, the property will not reach its full income potential if you don't hold onto it for a good while - we are talking about several years, at the very least.
Not to mention, once you acquire a property, upkeep expenses will impact your cash flow. Upkeep expenses can include maintenance repairs, and activities related to regulatory health and safety standards.
Lastly, as much as the real estate market is considered a reliable market. You should always consider periods of economic downturn which can hurt the value of your property and/or make the area less attractive to renters.
Like all good things, real estate is a combination of risks and rewards. Before investing you should always assess whether the potential reward outweighs the potential risk.
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