What You Need To Know About The Downsides To Property Investment

This contributed post is for informational purposes only. Please consult a business, financial and legal professional before making any decisions. We may earn money or products from the affiliate links in this post.

What You Need To Know About The Downsides To Property Investment

When thinking about investing your money into something, then real-estate could be the way to go. You see, despite the title of this article, there are upsides to property investment.

You can make a huge profit by buying a fixer-upper and turning it into a dream home for future buyer. Secondly, you can make a tidy income from the rental of your property. Also, your property will pave the way for a great retirement, whether you settle down and live in the house, or live comfortably elsewhere from the nest egg the property afforded you.

On the other hand, as with most things in life, there are the downsides. If you’re thinking about splashing your cash on real-estate, it’s important you consider the following before doing so.

A renovation project can go wrong

While you may have an eye on buying a property to sell for greater value later on, things can go badly wrong. Consider these renovation mistakes, as unwise decisions can ultimately lead you into financial loss rather than profit.

Rental properties can stand vacant

The biggest reason for investing in property is to rent it out to others. As we said at the outset of this article, you can make a tidy income this way. However, due to any number of factors (some of which we will explore here), there will be times when the property stands vacant. During this time, you will still be liable for mortgage and insurance expenses without the rental income to support the payments.

Location is important

Research is key when buying property, as you may end up with a vacant property because nobody is willing to move into the neighborhood. There are many incentives when considering these condos for sale, for example, due to the beautiful location and amenities on offer, but when you buy something in an area with little incentive for renters or home buyers, in an undesirable neighborhood and few amenities, you will struggle to fill the vacancy.

Tenants can be difficult

The perfect tenant will pay rent on time, look after your property, and give you due notice when they decide to vacate. On the other hand, you may be lumbered with a nightmare tenant. Causing hell for their neighbors with their noisy behavior, they might also restructure your property without permission, fail to make rental payments on time (if at all), and cause damages that will badly hit your pockets. While you can evict a bad tenant, the eviction process can be time-consuming, which is both costly and stressful for you.

Maintenance costs are on-going

You will spend a small fortune preparing the property for rental or sale in the first place. From rewiring the electrics to basic DIY, everything needs to be in place before you show prospective tenants/buyers around. Should you buy-to-sell, your work is complete when you have sold the property. However, the rental game is very different. From the tenant’s negligence to general wear and tear, you will be dealing with maintenance issues on a regular basis. Not only will this cut into your rental income, but there are also the stresses on your time and patience, as any landlord will tell you following a late-night phone call from a tenant in crisis.

Your property may not go up in value

Buying a property in a beautiful area should add value to the property, and there are additions you can make which will also add value. However, the property market is variable. Despite the location, house prices may not go up in years to  come, and if factors within the location change (recession, environmental damages), house prices could plummet. Your attempts to add value may also be for naught, as there are some renovations that don’t add value at all. You might even push down the sales price if you’re not diligent in your planning.

You can’t control mother nature

There are many things you can control within your investment. You can choose your tenants. You can choose some of the fixtures. And you can set rental and selling prices. That’s all well and good. However, you can’t control the weather, so while you should have fixed up the property to stave off normal weather effects – snow and rain, for example – there may still be issues with flood damage should Mother Nature decide to deluge the area, or wind damage if your property is in a location where hurricanes are likely. For this reason, you should ensure you are fully covered by insurance, but there will still be a period when you will run at a considerable financial loss before a payout is made.

Okay, so if you were thinking about property investment, you may well be put off after reading this article. However, there are the upsides, and you can reduce some of the risks by carrying out sufficient research before choosing which property to buy. A sizable profit can be made, but weigh up the downsides when you’re trying to clarify your position.