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At first glance, it might seem like investing in property is a great way to strengthen your financial portfolio and develop a more passive income stream. It’s a unique, rewarding venture that provides a great return to the right investors. However, property investment isn’t for everyone. You need to consider a lot of things before you make any purchases or sign any contracts. If you’re interested in property investment, here are the pros and cons to this income stream.
Pro: Added Income
Of course added income tops the list of the advantages of property investment. It is, after all, the biggest draw for prospective investors. Especially if you’re purchasing a property in the hopes of renting it out, that’s a fairly dependable stream of income. Naturally, this depends on the length of a lease on your rental application.
Other income considerations include house flipping. This means you buy a property, renovate it, and turn it around for a profit. There’s also commercial resale. This refers to the process wherein you develop a plot of land in the hopes that a commercial entity will purchase a space and build on it.
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Another way you gain income is through property appreciation, though this one isn’t a completely foolproof strategy. It’s a lot like house flipping in that you’re ultimately looking to turn the property around for added gain. However, it’s not always easy to quantify what helps improve capital gain when it comes to property investment.
For instance, painting and touching up a property often has benefits. But nowadays, if the property lacks modern amenities (say, air conditioning) you’ll find it hard to see concrete gains in property value. All of these are things to take into consideration during the renovation process.
Con: Landlord Responsibilities
If you’re considering a rental property as a source of income, it’s possible that you’ve overlooked one of the key aspects of the property investment process: being a landlord. Of course, you can outsource these responsibilities. However, depending on how hands-on the property is, that simply serves to eat into your profit margin. That’s why many property investors opt to serve as their own landlords. All the same, many quickly realize it’s not as easy a task as they might have imagined.
From ongoing maintenance to fussy tenants, you’ll find all sorts of drawbacks to running an income property yourself. But this is often the easiest way to ensure you’re reaping the maximum rewards from your property.
If you’re investing in a larger residential space, however, it’s probably in your best interest to hire a more experienced property management company. Usually, you pay them a recurring fee to handle the pressing needs of the tenants. Then you only have to step in for high-level issues such as structural damage.
Pro: Property Investment Is Less Volatile Than the Stock Market
It would be unrealistic to say that the housing market is by any means stable. On the other hand, property investment is often far less risky than putting your money into stocks. As long as you have active tenants, your property is providing you “dividends” that don’t fluctuate as rapidly or unexpectedly as the stock market does.
However, this doesn’t mean that the housing market has no risks. Certain towns are having difficulty keeping occupancy rates high. What’s more, the influx of new transplants to various cities across the country has made local housing markets cutthroat, to say the least.
On top of that, shifting interest rates can greatly affect your bottom line. Also, if the property market takes a serious nosedive, so does your discretionary income. This means that you always need to keep your fingers on the pulse of your local market. Then you can adjust as necessary. Otherwise, you could find yourself sitting on a money pit that’s draining your finances. The financials for property investment can also be affected by your term deposit rates with your lenders. And these can vary alongside the housing market.
Property Investment Is Worth Looking Into
Property investment isn’t nearly as straightforward as it may sound. You need to consider a lot of factors to make sure you’re wisely investing and making the maximum profits. But do your research and you should come out ahead.