The Primary Reasons for Your Reluctance to Invest in Real Estate

January 12th, 2024

Investing in real estate can be an incredibly smart financial move that leads to building long-term wealth. However, it also comes with risks and responsibilities that can seem intimidating at first glance. We understand the common fears that hold many back from taking the plunge into property investment. In this article, we’ll explore the top reasons why you may feel scared to invest in real estate right now.

1. Large Upfront Capital Needed

The first hurdle for aspiring real estate investors is usually the upfront capital needed to purchase a property. While it is possible to buy investment properties with less than 20% down through seller financing or specialty loan programs, having to put tens of thousands of dollars on the line right off the bat gives people pause. And then there are the other upfront costs like inspections, closing fees, initial repairs and maintenance to account for at closing.

We suggest running the numbers thoroughly on potential deals to see what capital outlays look like compared to projected rental income and tax advantages. Getting clarity around the breakeven timeline and expected return-on-investment can help overcome the fear of parting with so much cash upfront.

2. Managing the Ongoing Responsibilities

Another top concern is the responsibility felt for maintaining the property and managing tenants. Issues like unexpected repairs, late rent payments, vacancies and even evictions can arise. Unlike stocks or bonds, real estate is a tangible asset that requires oversight and management expertise to succeed.

We always advise new investors to start slowly – perhaps just one single-family rental or small multi-family to get their feet wet. There are also professional property management companies available to handle everything from tenant screenings to maintenance calls so you don’t have to. As your portfolio grows over time, you can choose what level of direct responsibility fits your bandwidth.

3. Lack of Real Estate or Landlording Knowledge

So much uncertainty exists around finding profitable investment properties, securing financing, assessing rehab costs, determining rental rates, and managing the investment long-term. Without prior experience or working with a knowledgeable real estate agent, missteps seem imminent.

The good news is that with online education through blogs, podcasts, video tutorials and courses, the learning curve has greatly accelerated compared to decades past. There are meetup groups and real estate clubs connecting new investors with experienced mentors. And leveraging a buyer’s agent or property manager can provide guided expertise so you can gain market knowledge.

4. Fear of Making Expensive Mistakes

Even seasoned real estate investors have tales of deals gone bad. Making the wrong judgement call on a distressed property and overpaying on renovations can lead to deeply negative cash flow. Signing the wrong tenant who causes property damage or misses rent can also quickly erase profits.

These “what if” scenarios can create analysis paralysis. We always recommend conducting thorough due diligence before purchasing. Consult comparable sold prices and projected rehab estimates from multiple sources. Vet potential tenants extensively through background checks, employment verification and prior landlord references. Gain clarity around landlord-tenant laws and necessary insurance policies. Following consistent processes helps minimize risks over the long-run.

5. Concerns Over Risk Profile vs. Stock Market

Some investors perceive the stock market as “easier” since your brokerage account can be monitored from an app and adjusted with a few clicks. However, equities clearly carry risks as well. They tend to be more volatile and vulnerable to emotional decision making. The average real estate property appreciates over time with market growth, while also generating consistent rental income along the way.

Looking at historical returns, both markets have merits within an investment portfolio. We believe real estate should be considered as a diversification play to hedge against stock market volatility. The hands-on involvement also appeals to those interested in tangible assets.

Ready to Learn More?

Our team works with investors daily who have overcome these same fears to build thriving rental property portfolios. We’re happy to answer any questions about getting started or strategically expanding your real estate investments.

When considering new asset purchases like investment properties, carefully examine your financial situation, risk factors and long-term goals upfront. Self-reflection around your true motivations coupled with expert guidance ensures properly aligning any real estate allocation to your overall investment strategy.

For complimentary consultations on smart real estate investing, Empire 8 Property helps investors objectively assess opportunities tailored to their needs. Contact us or call 0433 213 993 / 0483 000 008 to discuss your goals today. Our team looks forward to helping you pursue property investments strategically and with confidence.