Pros and Cons of Real Estate Investing: A Comprehensive Overview

Daniel Penzing
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The Pros of Real Estate Investment

When learning about real estate investing, there are many different strategies and different ideas that you may encounter. It is important to understand, however, if you truly want to achieve success in real estate investing, it is inevitable that you will need to concentrate on investing in properties. This is the number one method that will provide you the biggest reward, while also helping you build up your knowledge in the field.

With that being said, a lot of people are a little wary of investing in properties. They don’t want to get in over their head, or they’re afraid they’re going to lose too much money. If you’re thinking about getting involved in real estate investing, or you’re just beginning and you’re nervous about taking the plunge, there are a few reasons why buying property is a good idea.


Real Estate Appreciates Over Time

By comparing the rate of real estate appreciation with the rate of inflation, it is easy to determine that property will rise in value over time.

Studies show that the value of a property will rise at the following rates depending on the the economy:

  • Economy Rates of RE Appreciation
  • Low to Moderate Growth 1-3%
  • Consumer Confidence Levels (Consumer Sentiment Index) Decreases 0%
  • Consumer Confidence Levels (Consumer Sentiment Index) Increases 5-12%

Real Estate Has Unique Tax Benefits

Real estate investing comes with its own unique set of tax benefits. At the simplest level, the government allows you to depreciate the value of your building over the years. This isn’t a real deduction, but it reduces the amount of taxable profit you make from the property, which can be a great help to investors who make large capital gains in any given tax year. In other words, if you sell your property for a huge sum and make a massive capital gain on that transaction, you are still going to pay the same amount of tax over a period of years rather than a hefty amount upfront.

You can also deduct a whole variety of expenses against the profit you make on your property, including renovation costs. The IRS actually calls this home improvement , and it can really pay off if you have an old house that you’re making better.

Real estate investing also comes with the opportunity to build wealth by leveraging the size of your property. People who buy a property to live in get to claim the value of the home against their own personal perspective, but if you rent out the property, or allow someone to buy-to-let it, the landlord gets to claim the property as a deduction against the profit they make. This means that by combining your main home with an investment property you can save a ton of money on the taxes you’d pay otherwise.

Real Estate Provides a Steady Cash Flow

If you’re like me, then you’re looking to generate a steady stream of passive income each month.

Condos and rental investments might be the solution for you.

When you invest in rental properties, it’s likely you’ll receive a steady rental income each month.

Since the rental properties are passive income generators, you won’t need to spend your time and energy managing them.

No matter how much or little time and effort you put into your Real Estate business, you will still always have a steady income source.

When you own a rental property, you have a long-term vested interest in the property’s success, and this often means that you provide extra care and maintenance to the property.

If you don golf, then you already know all about purchasing golf shoes, a golf subscription, golf bags, golf clothing, and everything a golfer might need.

Wouldn’t it be easier if you could invest in your wardrobe and receive golf income each month?

This is essentially what you do when investing in rental properties.

Since you already have an interest in the property, you tend to put extra care into it and make sure that everything is kept in working order.

Real Estate Lets You Use Leverage

The most appealing thing about real estate investing is the fact that you can usually use less cash to invest on a property than you have to spend on an equivalent amount of shares in a company. Remember, one of the major rules for successful investing is to not overspend on buying an investment.

Real estate investors also usually pay the full price of the investment in installments. With real estate, you usually don’t find yourself in a situation where you don’t have enough cash to make a full down payment. This way you can use the equity in the property right from the get-go.

There is also a sense of urgency with real estate investing, unlike in stock investing, where you can take your time to ruminate over your investment.

With the leverage you can get through real estate, you have to make smart decisions and manage risks so that you can reap the rewards. You have to make the property attractive to what you perceive your target market will be, and you have to manage debt, as well as, make sure that your rentals are still solid after paying monthly expenses.

Real Estate Builds Equity

If you have ever purchased real estate and found that you had a difficult time selling it, it is important to take a look at all the details as well as the entire picture. The truth of the matter is that even if you’re looking to sell as quickly as possible, it can be a good thing to have a few houses that are still owned. This is because real estate is a valuable asset that can be a great investment.

If you are looking to purchase a new home, the purchase can be quite costly and you may find that you will have a difficult time saving for a down payment. If you purchase a home with real estate investing, you can use equity that has already been created on a previous house to help you buy the next one. This can help you to lessen the impact of the loan as well as the big payment of a down payment.

Real Estate Builds Wealth

While there will always be the very rare property that you will be able to sell for a profit, the vast majority of real estate investments will be sold at a loss. It is very rare that houses gain value in the number of years that you have owned them, but over the years that you own a house, it will continue to appreciate in value.

Real Estate Gives You Control

If you decide to buy a house, condo, or any other type of real estate, you will have a asset and can sell it at a later time. It is a great investment if you are a suspicious person and would like to have your money protected. When you have a house, the bank won’t take the home, and you will own the house outright. There are no second mortgages or any other flaws like that. It’s a great shelter; it’s your house. You call the shots.

Real estate also has a very long-term appeal. The housing market is usually a constant that doesn’t fluctuate much. It’s a reliable investment because it is so stable and dependable. When you are a suspicious person and regard the stock market as hectic, real estate is a great option for you. It’s a high-risk investment with a lot of ownership. You have to be sure that you can make payments and do everything necessary.

Real Estate Provides a Hedge Against Inflation

Real estate has the potential to provide tremendous returns over both the short term and long haul. Real estate experts point out that real estate can be a hedge against inflation as well as a hedge against interest rate risk because it exhibits an inverse correlation with both.

In times of economic uncertainty, real estate tends to outperform other types of investments. This is because investors often choose the safety of real estate when the stock market is doing poorly and other kinds of investing have the potential for losses.

The Cons of Real Estate Investment

You may get frustrated sometimes with your tenants and their behavior.

If your property’s location is remote and does not have a river with high traffic, then it can be difficult to find buyers.

There is also potential for your property to be affected by local natural disasters such as tornadoes, hurricanes, tsunamis, earthquakes, wild fires, etc.

You need to have lots of patience. One of the upsides to being a landlord is that you can take shelter from family responsibilities and enjoy a much more relaxed way of life. But renting out your properties can come with a fair share of headaches. You may get frustrated sometimes with your tenants and their behavior.

You also have to spend a lot of time on paperwork such as accounting, payroll, etc.

Sometimes, it takes a very long time for tenants to move out and you may have to be accommodating and keep them hanging on for months.

Real Estate Requires Money

In looking at real estate as an investment, it is important to acknowledge the financial demands of real estate investing. Most people do not have the kind of money required to purchase real estate, nor do they want to tie up all of their money in the wrong type of investment.

The cost of real estate is only one obstacle. Many people do not want to commit to property ownership for the long-term and mortgage payments can last longer than some people are willing to invest.

These long mortgage terms with shorter investment terms can be a barrier to entry. It’s great if the property appreciates in value and your investment goes up, but if the opposite happens, the impact to your long-term financial goals can be devastating.

Additionally, specific types of real estate, such as multifamily properties can be difficult to manage. If you purchase multi-family properties, you will have to deal with multiple residents, repairs, and other issues that can create a great deal of stress for the investor.

Most importantly, perhaps, is the issue of finding skilled real estate investors willing to buy and sell property at an acceptable fee. Finding skilled real estate investors is not always an easy task.

Real Estate Takes a Lot of Time

Real estate investing is not something you are going to be able to do in ten minutes a day. Being successful at it requires that you constantly work. If you need to focus more on your income-generating career, then real estate investing does not always allow you to do this.

Real estate investing does generate passive income, but you still have to go through the work of buying the property and managing the property. Unlike buying stock in a company, you don’t make money because the company is making money. You have to pay attention and work to make money with real estate.

Putting up a website, taking pictures of the property, doing open houses, doing open houses, showing the property, taking calls and emails from buyers, and arranging all the paperwork can all be overwhelming. This is why real estate investing can be a good way to go when you have a team of professionals to help you.

Real Estate Is a Long-term Investment

If you are taking the long-term view of your real estate investment strategy, then you should probably already have your eye on an exit strategy. If you want to take advantage of today’s competitive market, it’s important to know what is going to happen when you decide to sell your property.

While the current market is offering great opportunity, it is important to be aware that there are still certain things that you may want to consider before selling your property.

For most residential real estate purchasers, there is always the option of going back to a life of homeownership. If you are able to find a buyer, you can quickly reap the benefits of selling your investment property and start the process of buying another family home. However, if you are in a hot investment market, you may be faced with the risk of selling your property at a discounted price. With cap rates so low right now, many investors are going to be looking for properties that will help them turn a quick profit. If you’re not in a position to prepare for the type of clients that will be out there looking for properties to flip, you may find yourself stuck with a lower price than you expected.

Real Estate Can Be Problematic

Regardless of how you interact with a property, it’s in your best interest to respect any of the conditions and instructions outlined in the lease.

Unannounced visits to a property can be an unexpected gift to some prospective renters and an annoyance to others.

If you’re scheduled for an inspection you may not be able to get past an unannounced potential renter; or the renter may be inconvenienced, which shows lack of professionalism.

Be careful to avoid problems and issues regarding privacy, rights and access.

Some renters don’t even want the landlord present during the viewing and walkthrough. Consider scheduling walkthroughs at different times.

There are some things you can do to get past this. Provide a lockbox code and have a lockbox installed so that the renter can pick up the keys themselves if they’d like.

Once the walkthrough is complete, let the renter have some time to themselves. Let them reschedule, confirm, or decline your showing.

Real Estate Benefits Don't Always Apply

To Rental Properties In many ways, buying rental property is different from investment in other real estate assets. You might think that real estate is real estate, but rental properties are more flexible than their other counterparts. You can buy a home in a hot market and sell it quickly with a nice margin. You can also buy a distressed property in a down market and rent it out at a reasonable price. You have the option of applying the “buy low, sell high” advice you’ve read in so many real estate books. It can be a lot of fun.

However, you can’t count on applying every real estate investment principle you know. Buying rental properties is a lot more complicated and time consuming. You can’t simply open the door and move in. Instead, you need to do a wide range of tenant screening work, find good contractors, perform major repair work, and deal with many of the day-to-day hassles that come with managing properties. Here are a few examples of how the traditional advice about real estate doesn’t apply to rental properties.

Real Estate Investing Has Unique Risks

The biggest draw to real estate investing is the ability to purchase property and earn a steady income from it without actually having to be there. The rent can be paid with tenants and their lease agreements. The house can be maintained. All of it can be done without your physical presence. How awesome is that?

The big drawback to real estate investing is that you can easily lose it all if you don’t know what you’re doing. This is especially important when you’re just starting out. You don’t want to overpay for your properties. You don’t want to buy at the wrong time. You don’t want to get burned on late payments or repairs or renovations. You don’t want to take on more than you can handle.


Thinking of real estate investing can be overwhelming. But you can profit from this market using a variety of strategies.

To help you more easily determine which strategy is most likely to produce the type of results that you are looking for, here is an overview of how to choose the right real estate profit strategy for you.

Determine where you want to invest

If you are going to invest in real estate, you’ll likely want to pick a safe asset that can provide you with a predictable return. That’s why many people will pick a strategy based on where they live. For instance, if you live in a city like New York where there’s a lot of demand for apartments and condos, you will likely want to invest in properties. Conversely, if you live in a rural area where there are few properties for sale, you’ll likely want a different type of real estate profit strategy.

Determine how much money you are willing to invest