Are Investment Properties Worth It?

Investment properties are real estate assets purchased with the primary intention of generating a return on investment. These properties can come in various forms, including single-family homes, multi-unit apartment buildings, commercial spaces, or vacant land.

The main idea behind investing in properties is to earn rental income, benefit from appreciation in property value over time, and potentially take advantage of tax benefits associated with owning real estate.

But, are investment properties worth it? Let's find out in this article.

What are Investment Properties?

Investment properties are real estate properties that are purchased with the intention of generating income or profit. These properties are not primarily intended for personal use or occupancy but rather for investment purposes. Investment properties can take various forms, including residential properties (such as houses, apartments or condominiums) or commercial properties (such as office buildings, retail spaces or industrial properties).

The main goal of investing in these properties is to generate rental income from tenants or to profit from the appreciation of the property's value over time. Investors may choose to buy investment properties to diversify their investment portfolio, generate passive income or take advantage of potential tax benefits.

Investment properties can be managed and operated by the owner or by hiring a property management company. The success of an investment property depends on various factors, including location, market conditions, property management, rental demand and the overall economic climate.

Rewards of Investment Properties

Investment properties offer a host of unique benefits. They’re great sources of:

Passive Real Estate Investments

You’ll still have to put in the effort to find tenants and take care of necessary repairs or renovations. But once everything is taken care of, you can sit back and count on a steady cash flow coming in every month. You’ll also have the benefit of capital appreciation if your property increases in value over time. These factors are what make investment properties appealing assets to own.

Diversification

Investment properties are a great way to diversify your portfolio, particularly if you’re currently invested in stocks, bonds and exchange-traded funds (ETFs).

Tax Benefits

You need to report rental payments as rental income on your tax return. You also must report capital gains to the IRS if you sell an investment property for more than the price you paid. Investment property owners are able to deduct various expenses from their tax returns, including mortgage interest, repair costs, physical wear and tear and the cost of finding tenants. Make sure to consult a tax professional for all the details.

Risks of Investment Properties

Every investment comes with a different degree of risk. Investment properties aren’t immune to this rule. To own a successful investment property, you’re going to have to prepare for the risks. These include:

Lack of Liquidity

Real estate is not the most liquid asset to invest in. In an emergency, you can sell stocks or bonds and receive cash in return pretty quickly. Real estate takes longer to sell. In some cases, properties can sit on the market for weeks or months. Be prepared for your investment to be locked up.

Learning Curve

The most successful investment properties are born out of years of expertise. It takes time to learn about the market and to find the best business model. Knowing how to spot an up-and-coming neighborhood, which maintenance tasks to outsource and which contractor to trust can take a while to learn.

Landlord Responsibilities

Being a landlord requires extra effort. It can be time-consuming and even strenuous for some people. Landlords have to find tenants and screen them thoroughly. Some tenants may not pay rent on time or may damage your property. You’ll be responsible for maintenance work tenants may need. While you can hire a property manager to help out with basic tasks, it will come at a cost. You’ll need to figure out the best way to maximize your time and expenses.

Management Fees

Fees come with investment in real estate crowdfunding platforms and real estate investment trusts (REITs). Some platforms can charge high management fees or other types of fees. It’s a good idea to have a chat with a platform adviser to ask questions and read the prospectus before you invest. Be sure to ask about fees.

Returns Are Not Guaranteed

With any investment, there’s no way to know for sure when your investment will pay off and how impressive the returns will be. This is especially true for real estate crowdfunding investment platforms. Although many advertise average returns, these are never a guarantee for future returns. There’s a chance the platform’s investments could fail. Make sure you understand how your money will be protected even during a worst-case scenario.

When to Invest in Property

Investment properties used to have high barriers to entry. You needed to have a lot of capital on hand to enter the market. This isn’t the case anymore. Whether you’re a recent college graduate or a retired professional, you can take advantage of real estate investing now.

Technology and regulations have made it easier for everyone to get involved. Many online platforms pool your money with that of other investors — crowdfunding. Many crowdfunding platforms let you begin investing for as little as $1,000 or even less.

Best Platforms for Investing in Property

The rise of online platforms has made real estate investing more accessible than ever before. Here are some of Benzinga’s favorites:

Get the Right Investment Property 

Taking out a mortgage for your investment property is not the same as taking out a mortgage for a home you plan to live in year-round. You should expect to put a large down payment and be charged higher interest rates. Oftentimes, the approval requirements will also be different. You will need to consult with your mortgage provider to get all the details.

It can be a bit difficult to secure financing for an investment property. This is one of the reasons why REITs and real estate investment platforms can be a great resource. Whether you choose to buy an investment property yourself or invest with an online platform, real estate can be a worthwhile investment that can bring solid gains and diversify your portfolio.

Frequently Asked Questions