When it comes to real estate investing, the end goal is to invest smartly today to see good returns in the future. Whatever return (profit) you make should be enough to cover the taxes and risk involved. There are also other costs that come with having real estate, like maintenance, utilities, and insurance unless this is covered in the lease with the tenants.
Real estate investing can be simple enough, if you know the basic factors involved in the investment, the risk, and the overall economics of it. Very simply put, you buy property, and gain income from rent, so you can purchase more properties. It’s a cycle that leads to bigger profits and future prospects.
Note that when we say it’s “simple enough”, we don’t mean it’s a walk in the part. “Simple” doesn’t always mean “Easy”. With real estate investing, mistakes can lead to consequences varying from minor inconveniences to major catastrophes.
That’s why it’s always best to have a helping hand to guide you. Here at PFN Finance, we believe in educating our clients as well as helping them. So, we’ve put together an article to tell you the financial prospects of real estate investing. This way, you can decide if the pros outweigh the risks before getting started.
Read on to learn more.
4 Ways You Can Make Money Through Real Estate Investing
Without further ado, here are 4 ways to make money through real estate investing:
- Real Estate Appreciation:
Real estate appreciation is what occurs when properties rise in value due to changes in the real estate market. An example of this would be if the land surrounding your property becomes busier or scarcer (due to shopping centres and other amenities being built nearby). Another example would be if you upgraded your property, increasing its value to potential buyers. Real estate appreciation can be tricky as it relies mainly on predictions, which aren’t always accurate. It’s definitely riskier than the next method on our list: Cash Flow Income. - Cash Flow Income
Cash flow income is all about operating a real estate property you purchase. For example, an apartment building. You gain steady cash flow income from the rent you levy on tenants. Other real estate properties can give you cash flow income as well, such as rental houses, office or retail properties, and even storage units. - Real Estate-Related Income
This form of income is ideal for people who specialise in the real estate industry. For example, brokers. They make real estate-related income in the form of commissions on properties they help people sell/buy. Some real estate management companies also deal with the day-to-day operations of properties, allowing them to keep a portion of the rent in exchange. - Ancillary Real Estate Investment Income
Ancillary real estate investment income can be a large source of profit for some. It includes amenities like laundry rooms in rental apartments and vending machines in offices. This leads to a mini-business being formed for passive income within a bigger real estate investment. This lets you tap into income from another source of customers.
Pros and Cons of Real Estate Investing
Now that you know how you can make money from real estate investing, it’d help to know its pros and cons. Here they are:
Pros of Real Estate Investing:
– Low Risk:Real estate investing poses less risk compared to the stock market. The housing market isn’t as volatile as the stock market. The earning potential may not be the same, but real estate investing has a steady incline for the most part.
– Steady Income Flow:When you handle real estate investing smartly, you can count on a steady flow of income. With enough rental properties, you’ll have a stable source of money you need for your business.
– Tax Breaks:With real estate investing, you can reduce many expenses from your taxes. You can deduct on property tax, depreciation, mortgage interest, and more.
– Positive Prospects:You can trust that your long-term profit (returns) will be good when it comes to real estate investing. If you choose your properties well, they increase in value over time and you make money on appreciation.
Cons of Real Estate Investing:
– Lower Earning Potential Than The Stock Market: As we mentioned earlier, real estate investing poses less risk, but the earning potential isn’t as high as the stock market.
– A Little Cash Heavy: Money makes money. In order to gain a steady flow of income from real estate investing, you’ll need to have the cash on hand. Whether it’s your money or a loan, you may have to be able to pay for building upkeep, upgrades, and more. (If you’re looking for a loan, contact us. We can help you.)
– Liquid Money: Properties can’t be considered liquid investments. When you sell a stock, you can turn it into cash rather quickly. This is not the case with property.
– Building Maintenance & Tenant Management: Managing the property and its tenants can be challenging. You can choose to do it yourself or hire a property manager. Either way, the problems that come with owning a property are many and can vary. Unexpected issues like roof leaks, power outages, rent overdue, and more, can pop up.
Conclusion
Now that you know the financial potential in real estate investment, you may be looking at getting started yourself. It can be difficult to navigate the world of real estate investing, so let us be your helping hand. Contact PFN Finance and learn more about getting started on your real estate investing journey.
