Merits And Demerits Of Real Estate Investing
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By Adrianna Noton
The question of whether real estate investing is worthwhile has come quite often. The problem is that people only consider their point of view and don’t weigh the advantages and disadvantages properly. Below are a few of each that will help you decide whether you should or shouldn’t embark on it.
Let’s first look at the advantages. With real estate investing, you don’t need to sacrifice a lot of your personal time. Initially, you will have to do a little bit of research so that you can buy a good house at a great price. If you were building, you would have to check up on the progress. However, once the initial stages are complete, little to no effort is required from the investors. Smart investors hire property managers to handle the tenants. They only get their checks sent in the mail afterwards.
Another advantage of property investing is that it does not require a lot of capital to start. Assuming that your credit rating is good, you will more than likely qualify for a mortgage loan. If you choose this option, you will only be required to pay a small down payment. You can also work out the other payments. If you’re lucky enough to get a very good deal, then the rent you receive from the property will pay for the other monthly payments.
Furthermore, property investing offers high returns. Granted, you will need to spend a bit more money than other investments. Supposing you were to buy a house for around $150,000. If the value appreciated by only 5 percent, then you would pocket an easy $7,500 in profit.
Perhaps one of the biggest incentives to property investors is the tax benefits afforded to them. They can literally write off any expense on the house. If the house cost more to maintain than it brought in, then the owner of the house is exempt from taxes on that property for that fiscal year.
Now let us consider the disadvantages. Although you stand to make a lot of money by investing in property, there is no actual guarantee. Yes, some people will say that the value of land is always appreciating especially as the population continues to increase. However, there are times when the market just won’t agree with you. Take a look at the financial crisis of 2008. Homeowners were among the worst hit. Property prices dropped drastically. In fact, most of the houses are still closed and are being auctioned off.
Another problem with property investing is the lack of liquidity. Stocks, bonds, gold and futures are all quite liquid investments as compared to real estate. If you want to sell your house, you may have to wait a while as it may often sit on the market for a number of months and sometimes even years. Although this problem can be lessened by hiring a qualified real estate Agent, there is just no guarantee that your property will be sold quickly.
The expenses incurred especially if one has numerous properties can be overwhelming. As stated above, if you real estate investment costs more to maintain than it brings in, then you are exempt from tax on that property for that year. However, you will still have made a loss.
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Source:
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