Real estate investment is not always the best option for all the money you possess.

Real estate investment is not always the best option for all the money you possess.

Introduction:

Real estate investment include purchasing, managing, sale or rental of real estate (immovable property; generally housing and building) for achieving the basic objective of profit gain. The strategy of buying, managing, selling or renting the house or building is known as real estate investment. The investors need to be cautious about the security and return of their investment. First of all he should determine which type of investor he is – risk bearing, or he wants security of return back of capital or he expects regular return from his investment or may consult to real estate agent. Would it be right decision to invest all the money he possess in real estate?

For:

1. There is no actual guarantee of appreciation of real estate as the market goes on fluctuating. Accordingly it may depreciate if it focuses any negative image. Real estate investment can be the best substitute of other sources of investment but not always best investment.

2. Most of the time people appoint real estate agent for investment purposes who charges very high for these services. This would lead to unnecessary increase in cost of the property. Having an agent may cause unnecessary pressure to buy the property before you find if it suits your requirement or not.

3. The investing range is limited whether you want to actively take part in management of the property or hire someone else to manage it. Further additional costs are also incurred in the maintenance of the property. This will lead to certain outflow of cash from the income.

4. It is beneficiary only when the rate of fixed charge is less than return on investment, or can be said that the payments should not overcome receipts from the investment. Thus motive of any venture or business is to earn profits which is uncertain in this case.

5. Large sum of capital needs to be employed in such investments. If people are having relatively lower amount they will not invest in it anyhow in real estate. They may choose other investments such as investing in shares, debentures, etc. They find these investments more attractive than real estate one.

6. Many people had started their career by investing in real estate and the dull market condition is evidence when they all went bankrupt. This only appeals to those investors who are active in risk bearing. Thus it is not the best option for investing as it involve uncertainty regarding investment.

Against:

1. Real estate investment includes purchase of property for resale or rental purpose to generate income. This will provide regular assured income to the investor. In case for rental purpose, ownership of the property still lies in the hands of investor and in case of sale purpose the value of the building goes to appreciate during the period.

2. This investment is not time taking. With real estate investing you need not to sacrifice lots of personal time. You may appoint an expert its active manager who will look after the tenant or venture, whatever it may be, on your behalf. Little effort its only required in initial stage after that investors need not to devote his personal time.

3. Real estate investment results to some tangible property which can be pledged out mortgaged to raise funds from suitable sources of finance. Due to this credit worthiness, its ability to be borrowed is high in the market.

4. Returns on real estate are relatively higher than other. The expenses, taxes, or other unconditional losses can be written off easily. Such investments greatly appeals to cautious investors who looks for reasonable safety of their money along with fixed and higher return.

5. The investors need not pay 100 percent down but can pay 25-30 percent down payment. Further it can be financed by bank or other financial institution. This can help investors with lower funds, which later can expand his property with larger number.

6. If the property is financed by any financial institution or bank, the cash flow should be tax free and the investor can wait for the capital gain on the future sale of the property. The further gains can be utilised for writing off tax or other expenses.

Conclusion:

Before investing, the investor should classify the various forms of investments and determine which would be more suitable for him. People are quiet sensitive in case of security of their capital and real estate involve heavy risk bearing element. One should not invest all their money in real estate as they may fall shortage of funds which can't be arranged from real estate in very short period because properties cannot be liquidated easily. One should rather invest more money in that class of assets which can be liquidated easily if need for cash arises.