According to Newsweek, CNBC and other sources, billionaire industrialist Andrew Carnegie once said that 90% of millionaires got their wealth by investing in real estate. That alone should be enough for investors to at least consider real estate. But like any investment, real estate investing has both its pros and its cons.
You’ll certainly have to do your homework to be a real estate investor, as you’ll need to understand a wide range of financial, legal and general real estate terminology. But the rewards can be exceptional. Here’s a look at some pros and cons of real estate investing, as described by various professionals in the industry.
Pro: Passive Income
One of the prime reasons to invest in real estate is to generate passive income. People will always need a place to live, so well-located rental properties will always be able to generate income. With the right property in the right location, you may be able to generate enough passive income to cover your mortgage and even provide you with excess cash flow.
According to Bethenny Frankel, who has gone from reality TV star to real estate investor, as quoted by CNBC, “Investing in real estate is a great idea if you are in it for the long haul, not a quick return. Your best bet is investing in residential properties that produce rental income year-round.”
Con: Property Management
The downside of owning a rental property is that you’ll have to put in some effort to manage it. If you’re buying a short-term rental, you’ll need to manage check-ins and check-outs, cleaning and the nightly needs of your customers. For long-term rentals, you’ll have to screen for reliable tenants and respond to their ongoing maintenance requests. You’ll also typically generate less income with a long-term rental than a short-term rental in a hot area — although it may be more consistent with the right tenants. With the wrong tenants, you’ll also have to deal with late payments and possible damage to your property.
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