Real estate investing takes hard work, proper management, and a decent tolerance for risk in order to be successful. If you want to invest in property and come out on top, you need to have a proper strategy in place. Here we’ll show you the three reasons why investing in real estate isn’t for everyone and what you can do to hedge these challenges to generate more consistent profits.
Cash Flow Risk
Not everyone is able to absorb the risks that come with investing in real estate. For instance, you can be cash flow positive one year and once the local market shifts, enter into a negative cash flow stage that can make it difficult for you to cover your mortgages. If you don’t have enough money in savings to cover yourself, you could be in serious trouble. Many investors don’t realize that they can deduct property taxes, mortgages, bank loans, or line of credit interest as well as operating expenses and capital expenses to earn rental income. This is why it’s imperative to have a proper investment strategy in place to avoid losing money when the market isn’t in your favour.
Due diligence isn’t something everyone is great with. But, if you fail to adequately check the history, conditions, and limitations of a rental property, you could end up with excessive rehabilitation costs that limit profits. Many investors require skilled consultants on their side who can help analyze, plan, and execute purchases more effectively.
Taxation has an impact on the returns of real estate and needs to be considered before investing. Tax rules are complex though, and there can be significant tax implications if you sell the property since you’re required to probate the capital gains for the years in which you didn’t designate the property as your primary residence. Tax risks also exist if you plan to own international property since you also have to consider the different tax laws. For instance, you may be required to pay taxes in the country where you are generating revenue, and you may also have to consider capital gains there as well. However, investment properties can provide significant tax benefits if the owner knows how to maximize their tax strategy.
Owning property can be very profitable if you understand all the risks and taxes that apply to real estate investments. If you’re thinking about investing in real estate, be sure to contact us at The Beacon Group of Assante Financial Management Ltd. We can help you come up with a thorough investment strategy to make more money, take advantage of tax deductibles, and reduce your overall risk.