Comparison of investment tools: pros and cons of real estate investing



Comparison of investment tools: pros and cons of real estate investing

Comparing the advantages and disadvantages of real estate will save you from future surprises at the stage of search, purchase, and then general operation. Find out more about the pros and cons of investing in real estate, as well as where to look for real estate for investment

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Real estate is an asset that will reduce the overall investment risk of your portfolio. However, buying and holding real estate for capital gains requires active participation and a sufficient amount of knowledge. Also, like any investment, the purchase of space has its pros and cons. We talk about the advantages and disadvantages of investing in real estate below.

Advantages of investing in real estate

1. Real estate provides constant income

If an investor buys a property that he plans to rent out, it provides him with a stream of monthly rental payments. It is definitely worth considering the possible costs, in particular, the payment of mortgage payments, property taxes, maintenance costs, but they usually do not exceed the amount of rent and provide a stable income.

2. Real estate increases in value

Depending on the region, real estate tends to become more expensive. That is, a correctly selected area will gradually become more expensive and, as a rule, at a rate that is much higher than annual inflation. Also, even small investments in real estate can significantly increase its value, in particular, repair work.

3. Real estate can be purchased at a price lower than the market price

The real estate market has certain anomalies, in particular, an investor can purchase a property at a price below market value, for example, if the owner needs to sell the home quickly and you have sufficient cash. However, in order to take advantage of this feature, it is important to know the local market prices well or to use the services of a real estate agent.

4. Real estate provides protection against inflation

Inflation reduces the value of many investments. Prices rise over time due to the decline in the value of money. For example, if your annual return on your stock portfolio was 5.5%, adjusted for average inflation rates, your actual return was only 3.9%.

At the same time, real estate investing has historically kept pace with inflation, and it's actually a great hedge against that process.

That is, for example, with the increase in the price of products, the rent and the value of real estate also increase. At the same time, the monthly amount of the mortgage payment remains stable. Also, along with inflation, the value of the property itself increases.

5. Real estate has unique tax benefits

Real estate tax benefits allow investors to grow their wealth over time. The government usually offers tax incentives to real estate investors. These include depreciation and much lower long-term capital gains tax rates.

Also, the investor does not pay capital gains tax on the increase in value of the property until you sell it, which may not happen until several years after the initial investment. Also, the legislation of certain countries allows you to transfer the profit to another investment in real estate, thereby extending the tax deferral period even more. These arrangements allow you to potentially avoid income tax on the sale of real estate throughout your life.

6. Investing in real estate allows you to use leverage

Leverage is the use of borrowed capital to purchase or increase the potential return on an investment. That is, for example, with an initial investment of $30,000, you get the opportunity to control and receive all the benefits of owning an asset worth $150,000.

7. Real estate is an asset that can be easily controlled

Income from stocks or bonds can increase or decrease unpredictably. These processes cannot be controlled by the investor. With real estate, things are a little different, an active investor can search for the best deals, control costs, evaluate which of the applicants will become tenants, and decide when to sell. In this way, you can increase control over earnings.

8. Diversification

Investing in real estate is also a good way to diversify an investment portfolio, which reduces overall risk.

9. Investing in real estate is easier to master

It can be difficult for an investor who is just starting his journey to understand how the stock market works or complex algorithms for obtaining profit from securities. At the same time, many people are already familiar with the real estate market to some extent.

10. Tangible asset

Real estate is a tangible asset that an investor can see and touch. This provides a sense of security and control over the investment.

Disadvantages of investing in real estate

1. Investing in real estate is a long job

As a rule, it takes a long time to make a large profit from real estate. Also, this is only possible if you buy wisely and invest enough to properly maintain the property. Also, depending on the type of property purchased and the nature of your tenants, you may need to spend a significant amount of time managing the property. That is, if the investor plans to manage the property himself, it may mean that you will not be able to take a vacation for years.

2. Income from real estate may vary

During periods of weak demand, real estate may not be rented out at all, or it may not be possible to raise the rental rate as much as desired. Also, certain economic crises, political instability or natural disasters can affect property values.

3. The property needs maintenance

Maintenance problems can arise unexpectedly, such as a washing machine breaking down or a roof leaking. The costs of repairing or replacing household appliances can reduce the projected profit.

4. Real estate requires time and attention

First of all, the investor will have to spend a lot of time to choose the best area and find the most suitable housing. You can hire a property manager to work with tenants, but working with a manager will also take some time.

5. High costs of real estate transactions

The costs associated with buying and selling real estate (commissions, title insurance, loan origination fees, and various closing costs) can easily negate any increase in the property's market value.

6. Possible control over the amount of rent can reduce income

If you're investing in residential property, there's a chance that local authorities will introduce rent controls, which will severely limit your ability to raise rents.

7. Income from real estate is subject to taxation

Current income from real estate, as well as income from the sale of property, are subject to taxes.

8. The value of real estate may decrease

It is possible that the market value of the property will drop dramatically, especially if you bought the property at a price close to its peak value.

9. It is possible to reduce the rent for real estate

During an economic downturn, it can be difficult to find tenants. If this period drags on, you could be faced with ongoing mortgage, maintenance and utility payments without any compensatory payments.

10. Real estate is not liquid

It can be difficult to sell a property in a short period of time. This can be a problem if you need a large amount of cash immediately.

11. Liability risks

Rental property investors run the risk of being sued by a tenant, guest, or contractor who is injured on the property. To mitigate potential liability, a real estate investor may purchase a landlord's insurance policy and require tenants to purchase a renter's insurance policy if permitted by local landlord-tenant laws.

Useful expert advice

Anton Taranenko is the founder and CEO of Visit Ukraine and Visit World online platforms and the owner of the international development company AntaGroup:

Real estate investment is one of the most popular ways to invest capital. Real estate is resistant to economic changes and financial fluctuations. Even in the event of a financial crisis, when other investment instruments may experience a significant decline, the value of real estate usually remains flat and does not lose value very rapidly. 

An additional advantage of investing in real estate is the possibility of receiving a steady income. An investor can receive rent payments from tenants, which creates a stable and constant source of income. This is especially beneficial if the property is located in a strategically advantageous location. Real estate ownership can also provide capital preservation, as it can increase in value over time.

However, along with the benefits of real estate come disadvantages that need to be considered. First and foremost, investing in real estate requires significant financial outlays to acquire and maintain the property. Buying real estate can require a significant investment, especially in attractive locations with high demand. In addition, the property owner also bears the costs of utilities, repairs and maintenance throughout the investment period.

In addition to financial costs, real estate investment also requires time and effort. The owner has to constantly monitor the condition of the property, look for tenants, and deal with any issues related to property management. This can be a challenge for those who have limited time or are not interested in dealing with administrative issues.

Investing in real estate can be a profitable type of investment, given the potential returns and risks. However, before investing in real estate, it is important to do enough research and consult with experts to make an informed and successful decision. By analyzing their financial capabilities and investment goals, investors can make a good choice regarding their portfolio of investment instruments.

Where to look for real estate for investment?

Investing in real estate is an attractive proposition for those who dream of additional income and are also looking for an opportunity to obtain a permanent residence permit or citizenship in another country.

Before buying real estate, you need to analyze the political and economic situation in the country you choose to invest your savings. If you invest for the purpose of obtaining income from resale or rental, it is important to analyze the stages and rates of development of infrastructure facilities, the availability of high-quality transport connections, take into account tourist flow and seasonality. It is important to study the market and understand its features. Pay particular attention to the indicators of housing price growth during the year.

Turkey has a promising real estate market, because the country leads the ranking of countries with a high rate of annual housing cost growth and is among the five most visited countries in the world. According to experts' forecasts, Turkey's investment attractiveness will only continue to grow in the coming years.

Most investors prefer to buy business-class apartments in Turkey, because such an investment is a good option, both for living and for investments. Read more about the advantages of investing in real estate in Turkey here.

Also, according to experts, the real estate market in Indonesia, in particular on the island of Bali, is promising. According to forecasts, the amount of net profit from the sale of apartments purchased in Bali during the construction phase will be 44% in three years. When renting real estate, you can return the investment in 5-6 years.

However, when choosing real estate for investment, it is necessary to carefully look for a developer, it is better that he has international work experience. It is also important to pay attention to the type of real estate, location and existing infrastructure.

A profitable investment option in Bali is the purchase of premium apartments, in particular in the ANTA Residence Canggu complex from the reliable international developer ANTA Group.

ANTA Residence Canggu is a 5* hotel complex with a unique infrastructure, located in one of the most popular areas of Bali - Canggu, 7 minutes from the ocean. This is a complex of premium apartments, in which everything is thought out to the smallest detail for a perfect vacation.

The infrastructure of ANTA Residence Canggu includes:

- jungle roof-top (a bar with a jungle on the roof);

- tropical infinity pool with ocean view;

- world-class restaurant and coffee shop;

- underground parking with your own bicycle;

- coworking;

- personal golf cart transfer to and from the beach;

- a children's area with a babysitter;

- surfing school;

- SPA beauty salon;

- smart gym;

- venue for events on the roof.

So, for many years, real estate has been one of the best investment options. However, it is important for potential investors to carefully evaluate the pros and cons of investing in real estate, including their financial situation, potential risks and investment goals, before making a decision.

How to make money on foreign real estate, read here. Key factors of the investment attractiveness of the real estate object by the link.

Daria Rogova, Head of Insurance at Visit World

To move, travel or work safely in a new country, you will need health insurance. You can apply for an extended policy on our website here.

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More articles on the topic: 

Tourist real estate: prospects and opportunities for investors.

How investing in share of the premises?
What is the secret of smart investments: a guide for beginners.

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