People often assume that investing in real estate is a one-way ticket to wealth and success. There are countless books, blogs, and YouTube videos that tell you this. But what are the drawbacks to real estate investing?
Below, you’ll find many aspects to real estate that can make it challenging and time consuming. These are some things to consider prior to deciding to purchase investment properties.
Building Wealth Isn't Instant
The first thing to know about real estate investing is that building wealth takes time. Don’t expect to buy your first rental property and instantly be rolling in the dough. Rental homes cost money and even when you have tenants consistently paying rent, you will still have expenses and a mortgage to pay off.
Real estate investing requires you to play the long game and be patient about building wealth. This is especially the case if you are in an appreciation market, like San Diego. This means the value of your home will increase over time, but you may not be bringing in a substantial amount of cash each month from rental income.
It's Time Consuming
Owning and managing rental properties is a time consuming task, especially depending on how many you own. Keeping track of tenants, maintenance issues, and lease renewals can quickly become too much to handle, resulting in more stress for you and less time doing enjoyable activities.
To avoid this stress, many investors hire property management companies to handle their rentals. This can take a weight off of your shoulders, so long as you can afford it. Using a good property manager is a great way to free up your time and still reap the benefits of a real estate investment.
It Takes Up Headspace
Not only can real estate investments take up time, but they can also consume your thoughts. Many landlords have said that much of their time is spent thinking about the property, particularly when issues arise.
Managing a property essentially becomes a second job. There are no guaranteed vacations or time off because something can go wrong on the property at anytime. If you don’t have proper systems and back-up help, this can take away from the actual enjoyment of investing in real estate.
You Need to be Organized
Owning and running a rental property is hard work. You’ll be responsible for collecting rent, keeping track of maintenance issues, and creating leases. On top of that, you’ll have additional tax forms and likely be getting an increased amount of mail related to your property or your tenants. It’s important to have a good filing system so you don’t lose track of these documents.
One of the more challenging aspects is doing your own bookkeeping and accounting. This is a hard thing to learn if you have no experience doing so. Everything has to be recorded, from tenant late fees to vendor invoices to rent and mortgage payments. It’s easy to lose track of what’s due at what time when you have so much going on at once.
The Rental Market
There are many factors involved in renting a house that you may not have experienced before. For one, the market can change greatly based on time of year and the neighborhood the property is in. For example, if you’re renting a 5 bedroom home near a college, you need to put the property on the market in the summer months when students are in dire need of a place to live. Attempting to rent in the fall or later can result in you having to lower your rent price and experiencing a longer vacancy.
You will also have to learn how to price your home correctly. Many owners are only concerned about getting the absolute highest rental income they can. While we would all like to earn enough to pay the monthly mortgage payment and then some, pricing your home too high can cause a plethora of problems. It takes a good amount of market research to learn how to set the best rental rate and get quality tenants.
These are some things to keep in mind prior to investing in real estate. For specific information on investing in an apartment complex or multifamily, check out our blog below!
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Steve Welty
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