Postimees · New Home (Uus Kodu) · 2025
The two sides of investing in real estate: a good plan for getting rich or a constant headache?
English translation of the original Estonian article. Original headline: Kinnisvarasse investeerimise kaks poolt: hea plaan rikkaks saamisel või pidev peavalu?
See the original design in the magazineAlthough some media outlets report that certain economic indicators look negative, with cuts and layoffs here and there, the money hasn't gone anywhere. It still moves from one person's hands to another's and looks for a place where it can grow. One way to leverage your finances is investing in real estate. But is it really a smart move? How many risks and bonuses does it bring?
It's wise to remember one important keyword – relativity. A good old saying illustrates it clearly: the length of a minute depends on which side of the bathroom door you're on. In real estate too, we find more than one factor that can turn out positive or negative depending on your point of view and expectations: payback period, time spent, the number of problems and so on.
If the hope is simply to "flip" – a quick buy(-renovate-)sell – and things don't go as originally planned, the whole process can become a bad dream. But if you calculate the risks and are prepared for the worst while keeping an optimistic attitude, a lot can still go well. At a time when the market seems to be stabilising, flipping no longer looks so easy.
At first glance, long-term investment in real estate seems an easy and safe way to place spare money: buy, rent out, enjoy the income and sell later at a higher price. That is how the system appears to work from a distance. But is everything really so rosy? Let's look at the pros and cons.
Pros
- In the long run, inflation erodes the value of money, while property prices generally still rise.
- Rental income makes it possible to increase your monthly income.
- Real estate seems more of a tangible asset than, say, shares, over which an individual mostly has no control (e.g. unexpected political decisions and the like).
- Over time, returns can be increased through renovation, improvements and so on.
While a number of positive arguments make real estate an attractive investment opportunity, understanding the drawbacks is also critical. It's wiser to avoid disappointed expectations and make informed decisions.
Cons
- Not a very liquid asset: property usually can't be sold as quickly as shares, for example. Depending on the target price, a sale can take months or years.
- Even when using a loan, you need your own contribution (usually 10–30% of the price).
- Transaction costs must be taken into account: notary fees, state fees, broker fees and so on.
- Taxes related to ownership: land tax, income tax, utility costs, insurance and so on. Several of these have to be covered whether or not there is a tenant.
- The energy and time spent on management: finding tenants, organising necessary maintenance and repairs, and solving problems.
- Risk depending on location or the political situation. An economic downturn, government decisions, population changes or unfavourable developments in the area can lower the value of the asset.
- Problematic tenants can shatter all dreams of earning income. Dealing with those who don't pay on time, damage the property or break other rules/relations with neighbours can turn out to be time-consuming, expensive and stressful.
The drawbacks above show that putting money into real estate requires awareness, the financial capacity to invest more if necessary and readiness to deal with the unexpected.
Investing in real estate opens up new opportunities.
Although, with a bit of luck, property investments offer a chance to protect against inflation and gradually grow income, they have their drawbacks. Lining up the numbers is not always enough: an investor has to make informed decisions, be ready to solve problems and in some cases also deal with colourful human relationships.
If you have a clear goal and are ready to bear the stress that comes with management, investing in real estate still seems to be a good decision. The market is currently calm, Euribor is stable and there are plenty of offers. But without sufficient calculation and risk mitigation, it can easily turn into a nightmare. So analyse, plan and don't be afraid to ask experts for advice.