Investment in Real Estate: Important Things to note

Jul 16, 2013 by

Investment in real estate has provided some healthy returns in the past. More people now feel this type of investment provides security for a long-term. However, research shows that there is a high amount of risk involved in this. Success or failure depends on the time at which the investment was made. Like other industries, real estate industry too has seen some good and very bad times in the past. Before taking this big decision, you must consider a few pros-cons of this investment, along with some basic research on the industry trend.

Why is investment in real estate good?

There can be many reasons. One of the important ones can be deducted on your income tax. Based on the amount of money you spend on loans, repairs, maintenance, insurance and building depreciation, you can always claim returns. You can also claim tax deductions through negative gearing (where the cost of maintaining a property is more than the income gained). Secondly, you can rent the house for long-term, gaining even after your retirement.

What are the disadvantages of this type of investment?

Liquidity is the biggest disadvantage. You can sell your property, but you don’t really know how long it will take. Sometimes you will have to spend extra money for mortgage payments, for untanented house. For tanented house, tenants may damage the house, may not leave it or may create disputes. Also, the loan taken to buy the property may have variable interest rates. You may well see high interest rates in the future. Nowadays there is oversupply of properties, resulting in fierce competition. The prices of maintaining have risen. So, negative gearing may actually prove costly, even if it gives you tax benefits.

Are you really fit to invest in real estate?

Analyze these points before taking the final step. Having a stable income is very important. Earning more can shoot up your desires. But it is important to think long-term. Improve your credit score, or it may cost you with millions over the entire span of the mortgage. Think about the situation you’re in – single or committed. Anything might change. Try to see if you can invest constantly in every condition. Location too plays an important part. Do a basic research and choose a good site; also analyze the current situation of the market and take professional to guide if it is the best time for an investment in real estate.

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