There is no doubt that real estate is a lucrative industry. For many people investing in real estate is a great way of earning money. However, it is important to remember that there is lot of risk involved in the real estate industry. Before anyone invests in real estate, it is important to do research and understand the risks involved.
Nine important factors that needs to be taken into consideration before investing in real estate are:
1. Appreciation of asset value:
When you invest in real estate, you can rest assured that you will get more appreciation of your asset value on an average basis than other investments. Through smart management of your assets, rental income, etc., you can be sure that the net operating income will increase as time goes by.
2. Asset value is higher:
When you invest in stocks, bonds, mutual funds, etc., the level to which your interest increases depends on the expertise and knowledge of the managers of your portfolio. But with a real estate investment, you are not dependent on any of these to see a real appreciation of your investment.
3. Diversification of portfolio:
If you already have investments in stocks, bonds, and other assets, then a real estate investment will drastically reduce the volatility of your investments and ensure greater stability and returns.
4. Ability to finance:
Generating income from real estate, through rentals, etc., is not dependent on external factors, like the stock market, so that you can depend on this for a steady flow of income.
5. Asset value multiplication by leverage:
When you lease out your real estate investment, you get assured cash flow while securing your assets, without any of the volatility of stocks and with much higher and quicker dividends than stocks. The debt on a real estate asset can always be greater in value than the market price which results in increase in asset value and equity cash flow.
6. Liquidity is less:
While this can be a disadvantage in real estate (unlike stocks which can be liquidated faster) it can be turned to your advantage as you won’t be tempted (or even able to) sell off your property as and when you feel or like it, which means there is a possibility that the bad tidings will flow past and your property will still be in your hands.
7. Hedging of inflation:
The correlation of real estate to inflation has always been higher than other assets. There is always a relationship between high inflation and high real estate prices.
8. Tax benefits:
Real estate owners get maximum tax benefits, such as home loan and deductions in mortgage interest, etc.
9. Ownership pride:
There is a sense of ownership associated with real estate that does not come from other assets. It also gives a sense of security that is unparalleled.
