In this article, I will share ten real estate advantages and disadvantages you must know before you invest a single penny of yours. It can make you an ultra-wealthy person and also so poor that you can not imagine this life.
But, building wealth in real estate is easy. You just need to know how. Otherwise, it will become a dream that you will never forget. It will take your sleep away, and those hard money lenders will make your life hell. That is why you must be careful before investing.
Real Estate Advantages and Disadvantages
There are more than ten real estate advantages and disadvantages. But know these, some people do make billions of dollars no matter how bad and dirty the business is. If you stay strong and play the game wisely, no disadvantages can beat you up. You will become successful.
Read also: The history of the name Real Estate
Table of Contents
Real Estate Advantages
I love real estate investing and the business it offers. If you want to become financially free in the next five or ten years real estate investing is for you.
No matter where you live, in a big city or a small village real estate is there for you. You just have to understand how the game works. So let’s explore the real estate advantages and disadvantages with the pros first.
1. It is Easier to Understand
The best part is real estate is far easier to understand than any other investments, like stocks or building a business from scratch. Everybody knows to make good money here you have to buy a great property in a good location and then sell it for a profit.
The deal is simple and practical. About 99% of the world’s population knows real estate is like GOLD. If you buy one, people will start to treat you like a rich man. It gives you respect in this selfish world and a sense of financial security.
If you look at the world, most billionaires hold their wealth in real estate. So they can maintain this richness for generations to come. Land gives them the power to stay wealthy for 1000s of years. So real estate is the best investment there is.
2. It’s Improvable and Fixable
Real estate will never go to waste. If it becomes old, you can always repair it, improve it, and make it like new. There are always some ways to improve the property. Plus, if you want to make some good money from a rehab house for flipping, the option is also there for you to use.
For example, you will search for a house that does not look good. The paint has faded away, the ceiling is falling, and the water supply is in bad shape. Overall, the house is not ready to live in right now.
The owner is asking for $65,000 for the house. But the market value is $80,000 in the current market. I mean, if you try to buy a new home with the same facility, that will cost you $80,000. That is what market value means.
So you can negotiate with the seller and convince him to sell it for $60,000 because the house has many problems, and it will take some extra money to solve those.
If he agrees, you will make a great profit of $15,000 – $20,000, depending on the market condition. That is what real estate offers. It’s improbable and manageable.
3. A Hedge Against Inflation
In real estate, inflation will never be able to touch you. If the average price of daily items increases, your rental income will also increase with it. If the inflation increase from 2% to 3%, the rent you are getting will also increase according o the agreement.
For example, earlier you were receiving $1,000 for your 3-unit building. But now, you will receive about $1,100 from those same units if the inflation raises. Obviously, there are some rules and regulations to do that. But you got my point.
Real estate is a hedge against inflation. That is why the richest people on this earth hold real estate in their portfolios. Because they know what it can bring them.
4. Can Produce Income in A Market Crash
We all have witnessed the pandemic that has devastated the market. But if you have some homes or a building that is in rent, you don’t have to worry about the market crash.
Those crashes can’t affect you. Because every month, rental income will flow into your pocket no matter what. No market crash will able to harm you. Know that.
5. It’s Leverageable and Financeable
Real estate is leverageable. People are always ready to invest with you in those properties. Banks are ready to give you loans to buy properties. But no bank will agree to a loan to buy a stock if you are new. In this world of financing, a real estate investment is easier than any other investment in terms of financing.
So we have completed the first part of real estate advantages and disadvantages, now move to the second part.
Real Estate Disadvantages
Now, I will share five disadvantages you should always keep in mind while investing. Because my friend, there are good things, but some bad things can harm you a lot. Maybe they will force you to live like a depressed man. So be careful while investing in real estate. Here are those five real estate disadvantages.
1. Higher Transaction Costs
It takes a lot of money to buy a house. Yes, I have told you that financing is easy, but that does not mean you dont have to invest some of your money. You need at least the down payment money to buy a house.
For example, if a house is priced at $100,000, the down payment will be about $20,000 (20% of the total value). You have to arrange for that money.
Plus, if no one is ready to finance your investment, as happens at the beginning of an investor career, then you have to arrange all the money from the investment. And that is going to take your sleep away.
So yes, it is financeable, but it takes huge money to invest in real estate than any other investment.
2. A Low Liquidity Investment
Real estate does not offer liquidity. You can not sell it within a day like stocks with just one click. Real estate is different. It takes months to buy and sell a house. That is why if you need instant money, you can’t have it. There is no liquidity in real estate. Know it. I think this point is the biggest differentiator in real estate advantages and disadvantages and why people are afraid of real estate.
3. It Requires Huge Maintenance
There are some maintenance expenses then you need to bear if you buy a large multifamily building. You need to hire a property manager to manage all the tenants and collect rent on time. Year after year some extra expenses will also add to the building. You have to handle it.
That is why real estate takes maintenance and some extra money if you want to rent it out. If you want to sell it there are some other expenses also. But it all will be worth it if your property is generating profit.
That is why most people don’t want to get into this real estate world. They can’t handle all these headaches. It’s dirty and takes a lot of time to solve.
4. Not That Efficient
I would say that real estate is not an efficient business. It s not. The real estate business is a people business, and people do some delays. Those contractors will not work as they should. You have to deal with it.
Money will come, but mostly you have to make cash payments. And managing that can become inefficient. Every other sector is becoming completely digital, but real estate will always work as it’s working today. Because it’s a land-based business, you can’t move the land.
That is why the real estate business will have some inefficiency factors in it, till the end of the day, no matter how better the technologies are. That is what I think.
5. It Can Become A Liability
Yes, it can become a liability if you don’t handle it with care. For example, you have bought a good house. You want to sell it for a profit in the next 3 months.
But after purchasing it, you found that you have paid almost close to the market price. That is why selling that house has become a real change for you.
That house is becoming a liability for you. Sell it that fast. Otherwise, it will give you more pain in terms of money loss. So real estate can also become a liability if you buy the wrong thing.
So these are the ten real estate advantages and disadvantages you must know before you put a single penny of yours. I hope this article has helped to understand the inner concerns of this real estate business. Thanks for reading. See you soon.