Investing in real estate can seem high-stakes simply because it usually requires a large amount of capital to get started. Naturally, this makes people even more cautious before getting started.
But a smart investor doesn’t take unnecessary risks.
So is real estate a secure investment? And just how much risk is involved?
Realistically, real estate is a safe investment overall. Property is always worth something and for the most part, the market holds steady and has historically increased in value over the long term.
Once you analyze all of your options, you can easily decide whether or not real estate investing is for you as you read about how secure it really is.
Little Chance of “Losing It All”
One of the greatest aspects of investing in real estate is there’s very little chance you could lose your entire investment. You could put money in the stock market and have it crash the next day. You could invest everything you own into a franchise or a business only to have the business fail after a year.
This rarely happens with real estate.
When you purchase a property, you’re investing in something real - it’s a tangible item. That asset will always exist. Most investors earn a return by generating cumulative monthly cash flow, paying their mortgage down and long term capital appreciation to the value of the property.
So when you want to get out, you can sell the property and often you will be in a significantly better equity and financial position from when you purchased. Even if there’s been a dip in the real estate market, it’s rare you would not be able to recoup your initial investment capital.
The Risk of Vacancies
Now, you do have to keep your property occupied. If it’s sitting vacant, it will cost you money on a monthly basis versus generating cash flow. However, this is something you do have a bit of control over by being selective about where you purchase property and the type of properties you’re willing to purchase.
For instance, if you purchase properties in desirable areas close to “hot” employment sectors, good schools, or other necessary amenities - your homes are usually easier to rent. Additionally, purchasing high-quality, brand-new homes will give you an edge. People want to rent a place that feels like a home, loaded with the latest features.
Finally, this isn’t something you have to take care of on your own. If you want to, great! But you do have the option of hiring a property management company to help you find tenants. Take advantage of their expertise and advertising dollars.
Market Slow-Downs
In general, the real estate market trends upward. That’s not to say there isn’t a dip here and there, and sometimes, the rate of growth isn’t as high as you would like. If the stock market is showing significant gains, you may feel disappointed by the slow gains in your real estate investments.
However, real estate has a big advantage here. Even when the market is slow, you are still earning money month after month from your tenants’ rent payments giving you cash flow and reducing the mortgage amount. Plus, as a real estate investor, you don’t have to worry too much about inflation, since rents typically go up as prices and expenses do.
Minimizing Your Risks
As with any type of investment, the risk lies, at least partially, in the amount of research you do before you make the investment. While you don’t want to miss out on a good deal by overanalyzing every decision, you do want to carefully consider your options.
Of course, you’ll want to check out different neighbourhoods where you can own property, and find a place that’s going to be attractive to renters. Additionally, think about the different types of properties you could buy and whether they’re going to attract the type of tenant you want.
For instance, you could purchase a traditional two-storey house that would be perfect for a family to rent. In that home, you could turn the basement into an income suite, appealing to a young professional or student. Alternatively, you could buy a duplex-style home and rent out both sides of the property. Families like this style because it has the look and space you find in a traditional home, and usually at a lower price point.
Getting Out When You’re Done
We already mentioned you can make some profit from selling your property, but there’s a slight downside to this as well. It’s easy to get rid of stocks and other types of paper investments, but when you’re trying to sell a property, you need to find the right buyer. Sometimes, this can take a few months, so it’s not always easy to get out as soon as you decide that you want to.
However, remember that over the years you’ve owned the property, you were able to increase your equity using other people’s money. This usually results in much bigger gains than you’d see in the stock market.
Compared to other types of investments, real estate is quite secure, especially if you make the right type of choices. At TriUrban, we specialize in helping real estate investors build a real estate portfolio that will give them the lifestyle and financial freedom they desire. Book a consultation to go over your options today.
