Wealth Creation Through Real Estate- Pros & Cons
What are the Advantages and Disadvantages of Investing in Property?
Jul 23, 2009
In an era where there are many avenues for wealth creation, investing in real estate is still a popular vehicle. Knowing the pros and cons makes the final decision easy.
For most people investing in real estate is not an unknown quantity. Anyone who has simply purchased a home to live, has made an investment in real estate. More often than not this is the first rung in the ladder to creating wealth through investment in property or other assets.
Once sufficient equity is available in the first house, this can be leveraged to buy additional assets, which include other properties. It is a matter of planning and acting at the right time.
Investing in Real Estate for Wealth Creation: Pros
- Solid, tangible asset- Of course there are instances where people have losses from property they have purchased. But this is more due to personal circumstances and bad luck rather than the decision to invest in property. For instance if a person had to sell the property during a downturn in the market, then of course there would be losses. However, if the person was able to hang on to the property and ride out the bad times until there is an improvement in the property prices the losses could be avoided.
- Cash flow- A return on investment can be expected by way of rental payments. If the property is purchased in the right location, the periods of vacancy can be minimized.
- Tax advantages- In Australia, the costs incurred in maintaining an investment property can be set off against the income derived via rental and if there is a short-fall, this amount can be deducted from the taxable income from other sources. The costs include items such as interest paid on the loan, fees and charges paid to managing agents, council and water rates and general maintenance costs.
- Less volatility- The price of a house does not fluctuate as frequently as some other assets. It is accepted that a property cycle is around seven to ten years.
The Disadvantages of Investing in Property: Cons
- Initial capital- If one does not have equity in a property already, then the initial capital outlay associated with the purchase of a property can be substantial.
- Ongoing maintenance cost- Depending on the age of the property purchased, the cost of maintaining a property can add up to thousands of dollars per year. Even though these costs can be used as a tax deduction, the property owner still needs to find the money to made the initial payments.
- Inability to have quick access to the funds- It is not easy to liquidate a property in a hurry if the owner required access to the money. Selling a house can take many months. Although the ability to refinance the property to release some of the funds is available, releasing all of the capital is by sale which takes time.
Investing in any asset class is something that is dependent on current individual circumstances and future plans. Doing the necessary research to ascertain the correct vehicle for wealth creation is an important step in the planning process.
The copyright of the article Wealth Creation Through Real Estate- Pros & Cons in Investment is owned by Pauline Mascarenhas. Permission to republish Wealth Creation Through Real Estate- Pros & Cons in print or online must be granted by the author in writing.
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