The government offers a handful of tax benefits to real estate investors. For starters, the income you generate from rent is not subject to self-employment tax. All expenses related to your real estate business, such as making home improvements and traveling are deductible.
2. Passive Income
Once you get the hang of managing real estate, it becomes very simple. You don’t have to put much effort, yet the returns are incredible. Passive income can be utilized to live all your dreams.
1.High Preliminary Investment
You cannot make money from real estate without a big initial capital. Unlike stocks, you cannot start with meager cash. Apart from a heavy down payment, which is typically 20% of the asset value, you have to bear several other costs as well. Property taxes, insurance fees, maintenance/repairs, and mortgage installments can add up to an intimidating sum.
2.Dealing with Tenants and Carrying Costs
As a landlord, you will constantly have to deal with tenants. You could get lucky and find some highly cooperative renters who plan to stay for a long time (but it’s a long shot). People who have extensive experience with renting are likely to take advantage of the law and reduce your interests. The gap between two successive tenants shall leave you to deal with further expenses.
3. Liquidation takes Time
Building equity and increasing the value of the real estate is a lengthy process. Real estate investment is not suitable for someone looking for short term ROI. Selling a property is time-consuming, thus you cannot quickly redeem cash in case of an emergency.
4. Other Risks
Real estate can result in massive financial loss if you get the timing wrong. You may even invest in the wrong property at the right time. At certain income levels, tax benefits do not apply. At times, maintenance costs readily surpass generated income.
John Adams is a paralegal who writes about widespread legal and social issues. He helps readers overcome challenges and solve many personal problems the smart way, rather than the hard way. He aims to reach out to individuals who are unaware of their legal rights and make the world a better place.