Some people think investing in real estate is a worst of resources. Others even wonder why some people own lots of properties which they might not be making use of. In the end they might think that they do not have any other expenses, hence they choose to worst their money in buying properties. In this article I’m going to explain in brief the advantages and disadvantages of investing in real estates.
Real Estate provides protection against inflation. Inflation is the general increase in prices due to the decrease in the value of money. It has the effect of eroding the value of most investments resulting in financial losses. The case is however different in real estate investments as real estate investments keep the pace of inflation. As the prices of goods increases, so do rentals and the values of properties. Moreover, the costs of the fixed rate mortgages do not increase, therefore, the cashflow increases against the costs of ownership. However real estate investing has unique risks such as buying the wrong property at the wrong time.
Real Estates appreciate in value over time. This means that the property increase value over time as a result of either inflation and overall development in the area and home improvement. The increase in value tend to be a profit when the property is sold or as an increase in monthly earnings. However, Real Estate is a long-term investment that cannot be liquidated quickly for cash if there is need for emergency funds. it takes time to sell a property and the transaction costs are higher than selling stock shares.
Real Estate builds Equity especially when leverage is used wisely. in that case, the tenants are usually the ones buying the property as the rentals might pay down the mortgage payments as well as the interest thus increasing the net worth every month. However, Real Estate benefits do not always apply as at certain income levels some of the benefits will not apply for example tax benefits.
Real Estates offer a steady income. This is usually in the case of rentals. Rental properties can provide a steady flow of monthly income that allows for reinvestments in more properties. However, Real Estates require a lot of money to be acquired as well as the ongoing expenses for example property taxes, insurance and mortgage payments.
Moreover, Real Estate allows the use of borrowed capital to purchase or increase the potential return on investments. This is usually known as leverage. It however, reduce risks and allows to build wealth in the low interest-rate market.
ARTICLE BY ANGELINE T KANYEMBA