Property investment varies noticeably to other investment types like bonds and stocks and one needs to think carefully ahead of deciding whether real estate investment will be right for them. rnThis post discusses the advantages and disadvantages of real estate in contrast to bonds and equities.
The pros:rnUnlike bonds, real estate doesn't have a fixed date of maturity consequently the one can hold on until it is decided that it is the best time to dispose as well as realise any capital gains or protect against any deeper losses. rnThe value of a bond remains the same although with real estate it can increase substantially with time.
Whilst in the short term the value of real estate is usually subject to big changes both up and down, within the long-term property prices will commonly get higher through time.
With stocks there is the potential of bankruptcy that means they will have zero value. This will not occur with property.
Bonds pay a constant rate of interest over their lifespan, consequently the buying power of the interest lowers as time passes due to inflation. With property however the revenue it makes in rent, increases as time passes in line with inflation so the purchasing power of the return doesn't decrease as time passes like it does with bonds.
The cons:rnReal estate is illiquid. The actual process of buying as well as selling property can be extensive as well as costly. High deposits, capital gains tax, stamp duty, professional fees for instance legal professionals, surveyors and estate agency charges, all raise the actual purchase price of the property. For bonds and equities there are broker charges and also tax to take into account but these are nearly insignificant when compared to the big transaction charges of real estate.
Because most people cannot afford to buy real estate outright, the need to take out a mortgage arises, where the property is provided as security against a loan. In times of economic bust when real estate property values fall some investors may possibly find themselves in a situation where the actual quantity payable on the property is bigger than its value i.e. negative equity.
The amounts required to purchase real estate also leads to a basic absence of diversification when investing in property in comparison to investing in stocks and shares.
Equities have the potential for larger gains than real estate in the short term. It is actually quite achievable to experience 50 percent growth in twelve months whereas this is very unlikely in real estate.
Because real estate is tangible, it involves a substantially bigger level of management and servicing.
With stock markets you will find a huge number of prospective buyers and sellers investing on a daily basis. Therefore an increase in price closely indicates market opinion. With real estate there's substantially fewer buyers operating in the market as a result of the high costs.
For equities and bonds there's a continual stream of real time data supplied in the media from current rates, to trends, company performance details, current yields and so on. With property, normally values are unpublished, and market data is hardly ever thorough and easily available, and there is a lack of a continuous flow of price data. Additionally values of property are generally sluggish to respond to new info. Consequently information which is accessible to an investor could allow them to see revenue opportunities that's unclear to the rest of the market.
Consider the pros and cons carefully while deciding if to invest in real-estate. For lots of people, property investment is massively valuable and it has supplied a wealth of positive returns, for other people it has come back and bit them on the bottom.