- Property and Why People Invest in it
We all invest. Whenever you set up an account in a bank and deposit money, you invest. When you buy a car, you invest. When you purchase a property, you invest.
Any kind of purchase resulting in a valuable asset that can be resold later or the one that brings regular income can be considered as an investment. It’s only a matter of how much free money you’ve got.
Those who have enough often prefer investing in real estate. But what are the pros and cons of property investment?
Property as an investment asset
When you invest in real estate, there are two ways to make money.
- By capital gain. Put simply, it’s when your asset gets more expensive over time, so you can resell it later for a better price. The good thing is that property prices rise most of the time. Besides, even if you buy an apartment or a house for yourself, it’ll still rise in price after a few years.
- By renting out. No matter what type of property you invest in, you can make money by renting it out. Apartments, houses, offices, hotel rooms, warehouses, industrial real estate – there are potential tenants in each segment.
Often investors try to combine these two basic strategies, with one playing a leading role and another one – a supportive role.
Why is property so popular?
- Such assets are believed to be relatively safe. The so called solid assets are physical objects – firm and touchable. They can’t totally depreciate unlike papers with words and numbers that we call securities. It doesn’t mean property prices never go down, but they are more persistent and less dependent on the economy.
- A good real estate object under due care will only rise in price which protects it from inflation. It means that over time, you’ll be able to sell for a better price.
- If the property is located in a fast developing area, it is almost certain to get more expensive since its price depends a lot on the location.
- The dynamics of real estate markets is easier to predict if compared to stock or currencies markets.
Drawbacks of real estate
However, property as an investment asset has certain flaws that one needs to keep in mind.
- First of all, it’s expensive, and few people can afford buying it off hand. However, nowadays banks offer a lot of tools you can use to expand your budget.
- It usually takes at least several years to recoup the investment. It is considered that 5–6 years is a good term, so one cannot expect to make a fast buck.
- Any kind of property requires due care, timely renovations, and maintenance expenditures. And don’t forget about taxes. If one neglects these expenses, the property will quickly lose its commercial attractiveness.
- Depending on your home country, you may also face unpleasant or even harsh legislation system. In that case, you might even want to invest in a foreign property market with softer laws.
Despite all this, property has always been considered a good long-term investment object. Almost any successful businessman, Hollywood actor or musician own a property or two because such assets are relatively safe and work as a safety bag for the rest of their portfolios. When you know the pros and cons of property investment, such deals become less risky.