I had a great conversation at one of my small group meetings for some of our investors. They challenged me on the fact that I always have a positive view of things. Their concern was how much was the truth and how much was just me being a salesperson. It was an interesting challenge and one that I am happy to answer.
In fact if you look at the over 1000 blogs that I have written you will see that I am constantly reminding those that are investing in real estate to consider the risks, mitigate the downside and most importantly, remove the emotions from your property investment.
Being a real estate sales person and investing in real estate for over 20 years you might think that I would believe that there are no downsides to investing in property. Well in fact there are three main downsides that I have found. These are present even if you are a veteran investor, have 100's of properties and are Mr Spock when it comes to emotions.
So what are the three?
1. Investing in Real Estate downside 1 is the lack of liquidity
Everyone knows you cannot sell a property overnight, it's one of the biggest disadvantages of investing in property, but with the right amount of planning and an understanding of the market cycle you can make sure you buy well and have enough equity in the property to be able to offer it a price that the market will pay in any market.
2. Investing in Real Estate downside 2 is you have uncertainty in your actual cash flow
Whether it be from a tenant not paying or interest rates increasing, you never know what your property investment's cash flow is exactly going to be. You can overcome this by buying insurance that covers you against tenants and fixing your interest rate for a period but this costs additional money.
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3. Investing in Real Estate downside 3 is you need a lot of capital to buy a property
I'd love to say that every month you put aside a bit of spare cash is enough to buy another property. If it was that easy we'd all be doing it so instead you either need to scrimp and save, or use the equity in an existing property. The initial deposit can seem overwhelming but I can tell you that once you have a few properties and/or a few years under your belt you will see that the deposit for investing in real estate isn't actually that big a deal.
Live with passion,