What are the hidden costs associated with real estate investment?

What are the hidden costs associated with real estate investment?

Real estate investment has the possibility to be a profitable endeavor. This can take the form buying and renting properties, wholesaling, or buying and flipping homes. Any of these can prove to be great investment opportunities – either as an additional income or even as a primary income. 

What do the different types of real estate investment types entail? 

Real estate investing implies buying property, this may mean a house, land in general, or commercial property with the intent of selling or leasing it. Each of them have different requirements to start it, but most can be accomplished without having to spend a lot of money (outside of purchasing the property and dealing with maintenance etc.). 

Buying and Renting

In this scenario, property is purchased at a slashed price before being sold again after being sufficiently renovated. In this case, the idea is to have a monthly supplemental income which doesn’t require a lot of effort. 


In this case, a property is bought off-market at a significantly slashed price before being sold or assigned to another real estate investor. 

Buying and Flipping 

This style of real estate investing can prove very lucrative if it’s accomplished efficiently, especially compared to other real estate investment types such as wholesaling. 

How much will it cost to be a landlord? 

Becoming a landlord is an exciting and potentially brilliant long-term investment. However, it isn’t cheap and can be very time-consuming. 

The primary premise of becoming a landlord involves purchasing a property and renting it out to tenants. The landlord has the responsibility of paying the mortgage, maintenance costs, and taxes. The idea is that the rent paid by the tenant will end up being more than the costs associated with the property. Ideally, in a couple of years, this excess amount will offer a supplemental income or capital growth in general. 

However, in order to get a mortgage you will need to provide proof of income. In general, banks necessitate a minimum of 20% of the property purchase price when property owners want to qualify for a mortgage. This serves as a down payment. 

As such, potential property owners will most often have to have at least $20,000 at hand if they want to buy a property of $100,000. After that, potential property owners will need to deal with closing costs which generally turn out to be approximately 5% of the purchase price. 

Once the property is in your name, you’ll have to consider how much you’ll need to make sure that the property is rentable. This, of course, depends on the state of the property when you buy it. As such, it’s very important not to be drawn in by a very inexpensive property which will require excessive maintenance or renovations. 

Another aspect to take into account is that it’s very important to have cash reserves in the event of emergencies. With all of the above in mind, do enough research so that you never get caught off guard when purchasing a property. If you do that, the moment that you become a landlord you should be well on your way to becoming secure in your long-term investment opportunities. 

How do you start a real estate investment business? 

If you’re planning on starting a business, a limited liability company (LLC) is a great place to start. They are very easy to start and to maintain so you don’t have to have experience as a business owner. An LLC offers personal protection of your assets in case the business runs into any legal trouble, and the formation provides improved credibility. 

The process of forming an LLC can be done in five simple steps, and there are many professional services which can also do it on your behalf. 

Final considerations 

Overall, investing in real estate has immense potential whether that be by becoming a landlord, wholesaling, or buying property and doing a complete renovation so that it becomes someone else’s ideal home. 

In this industry, you can use your problem-solving skills and your creativity and put them to good use. You have the possibility of growing your personal wealth and maintaining a long-term solution to supplemental monthly income.