Investing in real estate is a great way to make your money grow without having to put in too much work. It is a great source of passive income. If you have chosen to go this route, you stand to make a lot out of your investment, and enjoy many other benefits. However, just like any other investment option, real estate investment has its drawbacks. This article looks at some of the pros and cons of investing in real estate.
Real estate is easy to understand
Unlike some investment options such as financial derivatives and other financial assets, real estate is very easy to understand, even for the beginner. It is very clear how everything works, and how you will make a profit. For instance, you buy a rundown property, do some renovations and sell it at a profit; just like any other business. Unlike other investments, real estate is not based on abstract concepts which can be quite complicated for the average person.
Your investment is under your control
When you invest in company stocks and other such investments, the performance of your investment is beyond your control. You just have to sit tight and hope that the company managers will make the right decisions so that the company shares perform well on the stock market. However, with real estate, everything is under your control. You can do some renovations to the property in order to increase its value, or sell it as it is; it is all up to you.
Real estate is not adversely affected by inflation
Most investments are adversely affected by inflation, but real estate is one of the few exceptions. This is because the value of houses and rent increases as inflation goes up. Therefore, real estate as part of your investment portfolio provides a good hedge against inflation.
High transaction costs
The transaction costs involved when investing in assets such as shares and bonds are negligible. However, this is not the case with real estate. The transaction costs involved in real estate investment are very high and these can actually affect the value of your investment. However, there is a way around this. Investing through real estate investment companies such as the ones owned by Phill Grove significantly lowers your transaction costs. This is because these companies benefit from economies of scale as they pool many investors’ resources and invest in big properties. The cost is therefore spread out among the investors.
Real estate is not a liquid asset
If you had invested in stocks and you needed money for an emergency, you could easily be able to sell the stocks and get the money you need. However, this is not the case with real estate. Properties can take months or even years to sell. If you want a quick sale, you might have to sell your property at a big loss.
Properties need to be managed and maintained
This is an extra expense to the investor. However, you can hire a real estate company to manage the property for you.