Advantages of Investing in Real Estate Property

Property has always been the safest popular option when it comes to investing with a capacity for immense growth and success. With the current instability and uncertainty ongoing in the world one must have a physical asset in hand to save your present and future. From cash flow to excellent returns, tax advantages, and diversification, investors can benefit from all these and much more predictable advantages.

Real estate is the most easiest and convenient business to get into. It comes with a lot of advantages which we have discussed below.

1.Cash Flow

If you are looking for a greater cash flow and ROI then investing in a real estate property is your ultimate choice. Cash flow from the property is bound to cover all your investor’s expenses such as mortgage payments, property taxes, operation costs, etc.

2. Fewer Risks

No doubt that with stocks comes a greater high-risk, which can lead you to bankruptcy. This is a major reason why people stay away from stocks and investment in property since they are less volatile compared to shares and other similar options out there.

There are very few risks in property investments as compared to other types of investment, say stocks, especially if you are investing for the long term or your future. As mentioned below, equity and appreciation are built with time, therefore, the longer you will hold your property before selling the more demand and value it will have, unlike a stock investment in which there are a lot of chances of value dropping down.

3. Tax Benefits/Deductions

PTI government has been thoroughly focusing on the real estate and construction industry in the budget for FY21. In order to boost economic growth and create more job opportunities, the government has reduced property taxes and reallocated funds.

According to Federal Minister for Industries and Production Hammad Azhar, “The maximum (duration) for availing tax exemption is being reduced to four years from eight years”

The rate of the CGT on the sale of your property will also be minimized by 25% each year.

“The government will not ask the source of income spent on construction (by builders and developers). The fixed tax on the sale by the builders and up to 90% reduction in taxes on the purchase of a home by the low-income people will continue in FY21”.

“The government has given relief to sellers instead of buyers by reducing the rate of CGT and minimizing the duration for CGT exemption on immovable property”.

4. Safety net from inflation

Inflation affects all the social, political, and economic corners of a country. But in a real estate market, inflation works differently and sides with the investor. If the cost of living increases, the price of property investments increases too. This relationship favors the investors in three ways:

1. The rental fee of a property can be increased from inflation.
2. The value of investment properties hikes drastically enough to cover for inflation.
3. Inflation does not affect mortgage payments which means that the absolute value decreases.

5. Sole management

What’s better than being the only sole owner/manager of your property? Without having any third party or the person involved. You can configure your property as you wish. Sell it or rent it, the decision is yours!

6. Appreciation

The higher the demand for your property, the higher the cash flow and price. The appreciation of a property is directly proportional to its demand. And this again highly depends on the area as well, irrespective of its scarcity. Home improvements also count a great deal into this.

7. Portfolio diversification

Think of it as having multiple assets in hand and being able to weigh the risks of each. Building a diversified real estate portfolio helps an investor to lower all the risks of each of his assets across multiple locations and types of property. This must be a dream of every investor, being unscathed and on top of the market trends.

8. Equity growth

Equity is the one term that we believe most people are familiar with. The more value of your property goes up, the more its of advantage to you. The more properties you have, the entire compounding effect of their equity will make you safe and financially secure.

Disadvantages of Investing in Property

1. Liquidity

Before stepping into real estate investment, keep in mind that the liquidity of a property compared to stocks is again very solid. For example, if one is in need of cash or runs into an emergency, don’t expect to cash out your property instantly or immediately. This only works in the stock market. Your property is only your long-term goal or saving.

2. Stock Vs property

Buying a property is nothing compared to buying stocks. Unlike stocks where you can purchase a few shares, in the real estate world you either buy all or you buy nothing. Property is no doubt more expensive and requires a lot of investment and capital.

3. Maintenance

This goes without saying but maintaining your property from time to time plays a crucial part. This is where one must spend extra money on things such as plumbing, paint, water, electricity, etc. The accumulative costs of these resources and necessities that you need to think about.

4. Liability issues

The location of your property is of utmost importance. If it is set in a bad location, then it can take months or years to find and look for buyers. Therefore, leading to a long time of wait to start getting returns.

5. Interest rates

If your property is mortgaged, then be mindful of interest rates. If rates start to inflate then your monthly loan repayments can shoot higher than your current rental profit.

6. Problematic tenants

The thought of problematic tenants is always there. No matter how vigorously you screen your tenants, no one can know for sure how people will turn out to be. One can’t really gauge anyone’s behavior from one meet-up. And then to say, even if one does end up with such an incident then the whole fiasco of removing such tenants from your property is frustrating and time taking.

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