The good and bad of real estate investment

There is no such thing as a risk-free investment. For each benefit gained from investing in real estate investment, there exists at least one drawback.

Feb 25, 2015 06:02 IST India Infoline News Service

If you believe that real estate investment is a high-return, risk-free investment avenue, you are living in a dream. There is no such thing as a risk-free investment. For each benefit gained from investing in real estate investment, there exists at least one drawback. For this reason, it is important to understand what are the returns and risks associated with real estate investment.
 
The good
 
High returns: Real estate investment offers high earning potential. The property prices tend to appreciate in value over time. It even becomes a source of additional income generated from rentals. The investment in the right property provides good inflation-adjusted returns.
 
Cushion from other investments: It is essential to diversify the investments in various asset classes. Real estate investment helps the investor to benefit especially at a time when the stock and bond markets are not performing well.
 
Tax benefits:  The investor can claim a number of deductions on tax returns. Some of them are repairs and maintenance expenses, insurance, buildings depreciation, interest paid on the loan and many more.
 
The bad
 
Liquidity: People invest in assets as they want to secure their future. They can use the property whenever they face a shortage of funds in the future. However, real estate investment is not a liquid investment. It can take time to sell the property and get the financial help.
 
Interest rates: If the real investment is done by taking a loan, the investors have to deal with the problem of variable interest rates. Rising interest rates will result in financial stress for the investors. The high-interest rates also have a negative impact on liquidity.
 
Single investment: There are people who put all their money in real estate investment. It implies that if they buy the wrong property, they are at a risk of losing all their money.
 
Costs: There are many other holding costs that are associated with real estate investment. Some of them are property taxes, brokerage, maintenance and repairs and many others. it becomes difficult to bear the costs when the property remains vacant, and there is no income generation. 

Related Story