Is Real Estate a Safe Investment?

Written by: Justin Nolette,

August 26, 2020

Property is a physical asset that will always be worth something. However, since it requires a larger amount of capital to get started, it is essential to consider how safe this investment is. People are usually more cautious before making such investments and rightly so. Smart investors need to understand all the risks before they make such decisions.

You must analyze the pros and cons of investing in real estate before making any significant decisions for yourself.

You Will Never Lose It All

Perhaps what makes real estate a safe option for investors is that there is minimal risk that you will lose the entire amount of your investment. This is rare and cannot be said about other common investment options such as the stock market, etc. For example, you could invest all your money on the stock market and lose it in an instant if the market crashes. Or you could invest your wealth on new business for it to fail miserably that you lose it all.

With real estate, the chances of such a loss occurring are greatly minimized. Property is a physical asset that has some tangible value. This means that you will be investing in something real, and real things do not lose all their worth. Your property will always exist. It will not simply disappear if the market crashes. It might lose its value, but you will not be left entirely without anything.

When you feel like getting out, you will always have the option to sell your real estate. Often, this results in a better return for you overall. Even if the market is taking a dip, there is still a high chance that you will at least recover your initial investment amount.

The Problem of Vacancies

Keeping your property occupied to earn passive income can present challenges depending on the area you decide to purchase property – which is why is it important to consider things like the renter profiles,  locations of your properties.. If your property is vacant, then you will be faced with negative cash flow. To ensure that this does not happen, you can do things like purchase property in desirable locations and provide additional benefits to your tenants or by renting out places with the latest features and upgrades, etc. You do have control over how much you will earn from your investment. You can make use of marketing and advertising to help you generate the greatest benefits from such an investment.

Unpredictable Markets

Like all other markets, the real estate market will also face some ups and downs. Generally, it has been seen that the real estate market trend is usually facing upwards. But there are always occasional dips or a slowdown of the market due to uncontrollable environmental factors. The major difference between real estate investment and stock market investment is the time it takes to reap the rewards. You might be attracted to the instant reward of stock markets. Real estate, however, takes a lot of time and patience. But the most significant advantage is that even if the market is not in your favor, you can still earn money by renting out your property.

Reducing the Risks

When you are about to invest a significant amount of capital, the risk involved will be minimized if you understand all the factors involved and do enough research to make a sound decision. You need to consider all your options and be prepared for the risks that you might face. For example, check out the different locations where your property should be located, what places are attractive to tenants, and what type of property will give you the highest return on your investment are all critical factors that must be analyzed.

To make a safer bet, you can purchase houses that would attract families or smaller homes to rent out to individuals. You do not have to worry much about the rent prices as they tend to show an upward trend as expenses increase.

Getting Out

However, when you want to get out of the game, things might get a bit difficult. When compared to the stock market, it is much easier to get out of this type of investments. While you are likely to make profit by selling your property – if you decide to sell when the market is slower, average days on market can trend upward, and it may take a bit longer to sell your property. Note, average days on market typically sit around the 60 day mark in the Edmonton region. Getting out of this investment cannot be done in the spur of the moment as soon as you decide to do so.

So overall, your investment decision is never a poor choice. Compared to other options, real estate is generally a very safe choice – especially when you invest with a holding strategy versus a flipping strategy.

 





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