May 25, 2018 / BY AKD

Pros and Cons of Investing In Real Estate

“Which is a better investment? Real estate or stocks?” This question is like asking whether chocolate or vanilla is superior. There really isn’t an answer because a lot of it comes down to your personality, preferences, style, and the specifics of the individual investment. Which is why we are listing the pros and cons of investing in the real estate market so you could decide whether to invest or not.

Pros

  • Real estate is a more comfortable investment for the middle class because they grew up exposed to it. Most people from this class have heard their parents talking about the importance of “owning a home”. The result is that they are more open to buying land than investing their money anywhere else.
  • Real estate is a tangible investment where: you can look at your property and feel it. You can even drive by with your friends, point out the window, and say, “I own that”. For some people, this holds psychological importance.
  • Frauds in real estate are very hard as compared to stocks if you do your homework. You can physically show up, inspect your property, and run a background check on the tenants. It is easy to make sure that the building is actually there before you buy it. Real estate investments have proved themselves to protect against a loss in purchasing power of the dollar.

Cons

Compared to other investment markets, real estate takes a lot of hands-on work. You have to deal with the midnight phone calls related to paper-work, gas leaks, sewage problems, and a whole list of things that you never even considered. Even if you hire a real estate agent to take care of your real estate investments, you still have to show up in a few meetings.

Real estate costs you money even if space is not occupied because you have to pay taxes,  utility bills, and more. This means that you could actually have to come up with money each month!.

The actual value of real estate hardly ever increases in inflation-adjusted terms. This is made up for by the power of leverage. Imagine buying a $500,000 property by putting in $90,000 of your own money, and loaning the rest from a bank. If inflation goes up 3% and now each dollar is worth less, then the house would go up in value. The actual value of your house hasn’t changed, just the number of dollars it takes to buy it. This can give you a 15% return. Backing out the 3% inflation, that’s 12% in real gains before factoring in the costs of owning the property. That is what makes real estate so attractive.

You will see a lot of real estate companies boasting about the benefits of investing in land. They degrade the stock market investment which is pretty much justified in case

 


Join The Discussion

Get more discussion like this in your inbox.