requirements are not the same as they are with other investing alternatives like stocks and bonds that require the purchaser to borrow 50 percent of the value of the securities. In real estate, it is more common to invest between 20 and 40 percent of the value of the property. Furthermore, based on the market and particular situation, it is possible to invest with as little as five percent down.
Flexibility with Income Tax
Who doesn’t appreciate flexibility when it comes to income tax? When investing in real estate, the investor enjoys certain allowances and deductibles. Most notably, common expenses such as insurance premiums, property taxes, management fees, maintenance feeds, and other operating costs can effectively reduce your taxable income.
Personal Control
Not all investing opportunities are created equal. When putting money into real estate, the investor is able to appreciate a higher level of personal control than when investing in alternative options. Each purchase can be crafted to fit the current situation and property. Property can be refinanced, terms can be adjusted, and investors can rent or sell. Essentially these details are left to the investor. Therefore, the investor gets to decide when and how to move forward with the investment. Maybe it’s not a good time to sell. The investor can opt to rent instead. There are several examples, but the point is, when you invest in real estate, you reserve the right to invest and sell under your own terms as determined by what personally and economically satisfies you.
The Disadvantages of Real Estate Investing
Unpredictable Liquidity
Buying real estate is usually fairly easy. Sometimes it is harder to find a sound investment, but overall there are always houses or property for sale. The downfall to real estate is you never know how liquid your asset will be. This is because the market greatly affects and is greatly affected by the overall economy. If the economy is in a slump and lenders are not approving loans, it may be harder to sell a house than say during the housing boom in and around 2006.
With that said, you don’t have to sell your property to make a return on your investment. In fact, there are several ways to earn a profit aside from selling or flipping a house. We will review these methods in full detail shortly. For now, just know that by preparing for the worst, you can overcome the challenge of unpredictable liquidity. Remember, in the long run, investing in real estate is still your best shot at a higher return on your money. You need only know what you face going into the situation.
Capital Requirements
Another primary disadvantage to real estate investing can be attributed to poor liquidity. Depending on the investment, you may be required to come up with a large amount of capital to put down. This very factor makes it difficult for consumers to purchase property and thus makes your investment hard to liquidate. The good news is I will share with you my techniques on how to avoid the need for a large amount of capital when investing. You will find this information in an upcoming chapter.
Risk
More than likely you already know that in order to make a big game, you must be willing to accept a certain amount of risk. Like all investments worth your while, real estate has some associated risk.
It is important that you take a moment and reflect on this fact. Real estate investing is not risk free. While there is potential to earn a great deal of money, there is also the chance that you will lose money.
It is for this very reason you need to educate yourself on the market and investing techniques before diving in. It is also for this reason that you need to be an accomplished decision maker. If you can’t