Real Estate Financing and Investing/What Are The Disadvantages With Real Estate

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Real estate investing is not free from problems. Watch out for the following:

  • High transaction costs, such as brokerage commissions and closing expenses. These costs eat up short term profits. Warning: If you might need your money out in a hurry, do not invest in real estate.
  • Negative cash flow with little down (too much leverage). In jargon, we call it an alligator.
  • Balloon payment due. Note: The balloon payment is the unpaid balance of a mortgage loan that is paid off in a lump sum at the end of the loan term. This is typically a large amount. You may be unable to make the final payment, default the payment, and lose your property.
  • Limited marketability. Lack of a central market or exchange to make real estate investments more liquid.
  • Management headache, such as unreliable tenants, or otherwise high professional management fees.