- Our Services
- Publications & Video
- Client Login
Risks and Rewards of Purchasing Investment PropertySubmitted by Townsend Asset Management Corp. on February 14th, 2019
If you are currently considering purchasing investment property, there are both risks and rewards. Like any investment, risks can be managed, but you need to be aware of them prior to investing in property. And like any investment, there can be rewards, some quite large.
The following is a breakdown of both the risks and the rewards of purchasing investment property:
- If you are purchasing investment property to serve as a rental, you will have to run the risk of dealing with tenants. While you may find good tenants, there is also the possibility of having the property damaged or destroyed by your renters, or tenants simply skipping out on their lease. Also remember that the time between tenants can cost you a lot of money, as you will be paying all the expenses without rental income to help offset those expenses.
- If you are purchasing investment property to flip for a profit, you run the risk of buying a money pit - uncovering more and more that needs to be repaired or replaced. Having to put more money into a property than expected may cut into any profit that can be made when selling the property, leaving you with a breakeven property, or worse, a loss.
- Even if you purchase a home to rehab and flip, there is no guarantee that the home will sell quickly, or at all.
- If you purchase property with a partner, you may end up with differing ideas on what to do with the property, whether to sell it or rent it.
- Property is much less fluid than other forms of investment. Should market conditions drop, a quick sale is typically not an option and you could find yourself saddled with a property much longer than you had planned.
- Real estate is tangible, so you can see your investment any time you wish.
- If you have done your due diligence, you can typically make a healthy profit on real estate investing, whether as a landlord or by rehabbing and flipping a home. Also, if you’ve purchased in a transitional area, holding on to your properties for a few years and then selling can bring in a healthy profit.
- Property values tend to be much steadier than other investments, so the likelihood of losing money on property is much lower than other, riskier investments. In fact, the longer you hold onto your income properties, the more your risk decreases.
- Investing in rental income can provide you with an income stream during retirement.
- While enjoying passive income, you will also be able to enjoy the tax benefits that come from owning investment property, as some costs may be tax deductible.
Before investing in property, make sure you spend time researching trends and the areas where you wish to purchase, as well as discussing the options with your financial and tax advisors.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2014-2019 Advisor Websites.