What makes a good investment? This is one question any investor would like to be answered. With so many investment options available, thinking of what investment to make will lead you into investing in real estate.
Every family would like to own a house and a lot to call their own. In fact, they can do away with fancy cars and precious jewelries just to own one for themselves. With this in mind, investing in real estate becomes a lucrative form on investment. However, is this really worth your time, money and effort? Here is a look at the two sides of a coin in s far as investing in real estate is concerned.
Profit comes huge in real estate because the price you are paying for it is also very expensive. Nevertheless, this will lead you to the next advantage which is financial leverage. Accordingly, you can borrow up to as much s the value of the property is concerned. This is what makes investing in real property easier. Unlike with other assets wherein you will be asked to pay the price in full, with real estate, a minimum of 5% down payment will suffice.
Real estate investing is inflation resistant. As such, its value also rises whenever the rate of inflation increases. In fact, prices of real estate can go higher even before the inflation rate has increased. However, you also have to look into the location of the property where it is situated and the demand for it in the said area. Thus, always exercise caution in choosing which property to invest in.
Investing in real estate is packed with taxation benefits. First of all, the cost of interest can be deducted in full whether it is a residential or commercial investment. As a result, your marginal tax rate can lead to a significant reduction in your cost of funds. Real estate properties have the capacity to depreciate. This depreciation can be used in offsetting taxable revenues wherein you can lower your taxes.
On the contrary, investing is real estate also has its own share of disadvantages and one of them is the payment of taxes for a non-liquid investment. Likewise, in an investment portfolio where there is a real estate investment, one will be required to put up liquid assets that can be converted into cash in the event the returns arising from real estate will not suffice to settle recurring costs.
One very important disadvantage that you should know about real estate investing is that it cannot guarantee that the properties you have will retain their value even if the economy is unstable and evolving.
Above all, maintaining a home is very expensive. It requires maintenance and upkeep of the place requires a great deal of effort, time and money. You have to pay for minor repairs and construction.
If you are thinking of investing in real estate, weigh your options first. Think of the pros and the cons. In so doing, you will be able to determine if real estate is indeed for you.