Buying and selling real estate is an attractive process for millions of Americans looking for extra income. They are often attracted to the field by success stories of men and women making thousands of dollars flipping properties. But for every success story, there are dozens or hundreds of individuals who lose a considerable amount of money on a bad investment. Any individual looking to make a real estate investment needs to know both potential risks and rewards before making such an important decision.

Reward: Steady income

Buying and selling real estate can lead to periods of steady income. These periods often result from the stretch in between purchases and sales. During that stretch of time, individuals can make a considerable amount of money through rental fees. These fees can bring in as much income for a considerably-sized apartment building or house as many individuals would make at a traditional job. In some cases, the work involved in bringing in rental income is minimal compared to a full-time job. Craig Nassi notes that landlords often only have to put in time and effort when there is a vacancy or a complaint from tenants.

Reward: Appreciation

One of the clearest rewards of real estate is appreciation. This reward is the primary reason why a large number of individuals engage in real estate investment. The goal of most real estate investments is to buy at a low price and sell at a higher price. The difference is the largest return that most individuals will receive from buying and selling a house or apartment building. This process is designed to bring value to a property that may have become an eyesore, increasing the value of all houses nearby. This also takes a distressed property off the hands of an individual who was not caring for it, and turns this same property into someone’s dream home.

Risk: Vacancy and lost time

Vacancy is the clearest issue associated with real estate investments. The money from rentals can be a considerable boon for investors. But there is also lost revenue from vacancies. Individuals have many incentives not to leave a property. They often have to sign a lease and put down a deposit. Still, individuals have no significant legal obligation to stay at a property if they do not want to. A person who has left will often leave a significant mess for their landlord to clean up. Every month with a vacancy is another month without rental income.

Lost time is an inevitable byproduct of vacancy. Individuals with vacancy issues have to spend a considerable amount of time listing properties and taking prospective tenants on tours. They have to clean up their property and make sure that any damage to the property is fixed in a timely manner. This process could take days or weeks and can be multiplied in a large building when there are multiple vacancies.

Risk: Total loss

There is always the possibility of a total loss when investing with real estate. Stocks and bonds are paper assets that are not tied to individual objects that can be lost, stolen, or destroyed. Real estate is a different matter entirely. Houses and other pieces of real property are vulnerable to storms, fires, and floods. There is the possibility of damage from crime or arson. Such events can be paid for with insurance in many instances but buying a property and then having insurance pay for a possible depreciated amount is not a sound investment strategy.

Conclusion

Craig Nassi believes that real estate is a rewarding area of investments that could lead to the gain of significant sums of money. But everyone who is working in the field could have a tenant leave or a natural disaster cause damage. Individuals must be careful and make sure that they are considering these pitfalls and using hedges and insurance policies to control for them. Being careful with risk is essential if anyone wants to properly invest in, collect rent from, and even flip real estate.