Investment property as a way to achieve financial freedom is a smart idea. How does investing in property work in practice?
Investment property may cause you a lot of stress, but we believe you’ll find a way to get through it. The majority of us will find a way to survive tough situations when we are put in a situation where we have to decide whether we’ll sink or swim. Ultimately, that we can make a property investment work and gain financial freedom.
Investments in real estate are often viewed as being less risky than other types of investments. Although it may seem more straightforward, there are pitfalls to be aware of. Below are some things you should consider before investing in property.
Pros
- Less volatility – Shares and other investments can be volatile, but property can be less so.
- Income – You earn rental income.
- Capital growth – If your property increases in value, you will receive a capital gain when you sell.
- Tax deductions – You can offset most property expenses against rental income, including interest.
- Physical asset – You are investing in something tangible.
- No specialized knowledge required – Not like other investments, you don’t need any particular specialized knowledge.
Cons
- Cost – Mortgage and other expenses may not be covered by your rental income.
- Interest rates – A rise in interest rates can mean higher repayments and lower disposable income.
- Vacancy – There are times when you have to cover the costs if you don’t have a tenant.
- Inflexible – You can’t sell off instantly if you need to access some cash.
- Loss of value – If the property value dips, you could end up owing more than the property value.
- High entry and exit costs – Expenses such as stamp duty, legal fees and real estate agent’s fees.
Finally, find out how to get an investment property by researching the market. Your return on investment depends on where and what you buy. You should consider whether the shortfall can be covered in the long run. In addition, find out whether you can cover all expenses if you don’t have tenants for a while.