Five Advantages of Real Estate Investment
Real estate can be a lucrative investment. Before you plunge into it, understanding the advantages and disadvantages is important. The advantages of real estate investment are discussed here.
1) Security of income
Most types of real estate investments such as offices, apartments, shops, factories and even vacant land are able to provide a regular source of income in the form of rent through leasing out the property. As rents are generally contractually fixed for a term of years, such as three years with an option to renew at the prevailing market rent for another three years, there is a certain degree of security of income at least during the term of the lease. Hence, whilst the stock market tends to be highly sensitive to short term changes with prices rising and falling generally across the board and sometimes very rapidly, property rental income and thus values tend to lag behind such short term market fluctuations.
2) Security of capital
Property offers one of the safest form of investments in terms of security of capital as it is durable, has a long economic life and for some types of properties is relatively scarce. Moreover, whilst a building may be destroyed by fire, the land on which it stands is indestructible and generally appreciates in value over time. In fact, because property is durable, there is added security in that while an investor in stocks and shares may lose all his capital if the company goes bankrupt, such a situation is unlikely to occur in property investment.
3) Value gain
It is a reasonable assumption that few other investments can benefit as much as real estate can from the input of management expertise. Imaginative and good management has a little effect on most other types of investments. The management of one’s overall portfolio of stocks is crucial but the stock market investor generally can have little effect on the individual publicly listed companies whose shares he or she has acquired. Sound management, on the other hand, can add considerable value to a real estate asset, while the lack of it invites disaster.
4) Estate building through refinancing
Building up an estate or property investment portfolio may be a vehicle for becoming wealthy. Once an investor’s equity has increased through capital appreciation and repayment of the loan taken, the original property can be refinance to free cash that can be used to buy a second property, or the increased equity in the original property may be used as a collateral of security for a loan to buy a second property. By refinancing a property investment and reinvesting these funds in more properties periodically, an investor can accumulate a large property portfolio over time.
5) Pride of ownership
The personal satisfaction derived from an investment is especially important in real property. For many investors, property ownership retains a mystical quality, with a value that defies measurement. Owning a private residential unit is generally regarded as a status symbol.
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