Jan 16 Advantages And Disadvantages Of Investing In Real Estate
Real estate is one of the most popular ways of investing money for future profits. It’s simply all about –paying money for some property with the expectation of capital growth over time. Real estate investments offer financial returns by increasing in value over a given period of time. You can also develop a property and rent or lease it out to tenants. And you can even create an income generating venture on your property, such as a car wash, to earn revenue from the sale of products and provision of services. Like any other investment option out there, real estate has its own share of benefits and drawbacks as discussed below.
Advantages
One of the main advantages of investing in real estate is that it can be used as leverage to finance other investment concerns. In other words, you can use your property as security to borrow more money for other investments. When used as financial security, real estate can enable an investor to expand his portfolio vastly in a very short period of time. Another advantage of real estate investment is that it is a good hedge against inflation. This is due to the fact that property values adjust proportionately to inflation; they rise and fall as inflation rises and falls. This means that real estate shields your portfolio from inflation-related losses. Another pro of investing in a property is that it offers a steady income stream after development.
Unlike stocks, whose value is dependent on the success of a company which is not even under your control, real estate is improvable to increase its value. With proper management, you can grow the value of your property immensely and even generate colossal amounts of income on a regular basis upon development. In some jurisdictions, real estate investments are exempted from various types of income taxes. And because the real estate market is flout with inefficiencies, investors have a chance of making massive profits if they take the time to research the market properly. The last advantage of owning property is that the real estate industry is quite easy to understand and maneuver.
Disadvantages
Real estate investments tend to have high transactional costs, especially in legal and brokerage fees. The process of acquiring a new property is also very long and tedious with lots of legal formalities. Another disadvantage of property investments is that they are not easy to liquidate. Unlike stocks and bonds, which can be bought and sold at anytime at the click of a button, real estate investments are not easy to sell, especially if you wish to make a profit. If you wish to buy profitable properties, as well as fetch good prices for your properties, you should consult a professional New Jersey accounting firm for advice that has industry expertise.
Another drawback of investing in the real estate industry is that your investment comes with all kinds of legal and financial liabilities. When you invest in stocks and bonds, you bear a limited liability on your investment. Contrastingly, property owners bear all liabilities for buying, development, leasing, managing, and maintaining the real estate venture. Another disadvantage of investing in real estate is that it poses significant risks due to the many market inefficiencies in the industry. If you mishandle the market inefficiencies in the property market, maybe by making rash purchase decisions, you can incur huge losses on your investment.
