One of the oldest businesses on Earth, real estate has played a crucial role in building wealth for individuals throughout the millennia. What makes this form of investing so interesting is that unlike stocks, real estate’s high level of illiquidity serves to protect landlords during times of financial or social uncertainty. Another unique aspect of real estate investment is the multitude of ways one can profit from it. By assessing the pros and cons of investing in real estate during 2020, we hope to help you decide whether investing in real estate is right for you during this time.
When comparing stocks to real estate, the two are at the complete opposite ends of the spectrum. For example, stocks are highly liquid while real estate is highly illiquid. Consequently, selling real estate takes longer than selling a stock. However, real estate can offer much more protection than investing in the market as you can expect to get paid by your tenants.
Regardless of the financial benefits that come along with monthly cash flow, the setback real estate investors face can sometimes be more than its worth. Specifically, latent defects are an issue encountered by many landlords. These are hidden deficiencies within a building that can sometimes be of major consequence. Not only can these defects negatively affect the value of a property once discovered, but it can also cost landlords tens of thousands of dollars out of pocket. We along with many other real estate professionals suggest you get your prospective properties inspected before closing to prevent latent defects from becoming an issue.
Due to growing humanitarian sentiment in the United States, many landlords may also suffer from government policies or incorporative tenants. In New York City, lawmakers have proposed suspending rent payments for 90 days to help those affected by the coronavirus. Furthermore, the state of California along with many others have temporarily banned evictions. For those unfamiliar with the eviction process, it can take months to successfully remove a tenant from a landlord’s property and comes at no small expense. These current reforms are among many other pieces of legislation, which have curtailed the power that a landlord has over their tenants. While legislation of this sort does incredible justice to everyday tenants, it proves a complex moral enigma for landowners to consider in times of financial distress.
As a real estate investor, it is also crucial to be cognizant of how to make money in multiple ways from a rental. Typically, property will appreciate 2% on average every year. When it comes time to sell your property, you can expect to sell it for more than you paid for if the real estate market is cooperating. In addition to appreciation, you make money as your tenants pay off your mortgage through equity. As you build up equity, you will have the option to take it out of the house and use it to pursue more deals. Despite needing a hands-on approach, real estate investing offers a plethora of ways to amass a fortune.
