Benefits and drawbacks of investing in properties
The Pros and cons of property investing
06:56 23 July 2014
Investing in bricks and mortar is a widespread form of accruing capital since renting houses is pretty easy to comprehend. You can elect to build or buy houses and units to rent, but there are some issues about the property market that you must understand if you are to be successful in your venture. Only invest in the property market if it aptly suits you.
Benefits of Investing in Property
- Property brings you income in terms of rent and you also benefit in capital growth as the property appreciates over time.
- Property is tangible. You are investing in something you can see and lay hands on
- The property market attracts less risk when compared to shares and most other investments.
- If you borrow to fund the property investment, you will easily repay the loan and accruing interest using income from the rented property.
Drawbacks in the Property Market
- The costs involved can be very high in terms of stamp duty, real estate agent’s fees and legal charges
- Property market is prone to negative equity where you may end up owing much more than the value of the property if its value dips.
- At times, the rent may not be sufficient to repay the loan and other charges.
- In some instances, there may be periods where you do not have a tenant in the property, forcing you to cover the costs yourself.
- Most property investors have less than ideal diversification which is risky.
To help you mitigate risks in property investment, diversify your investment in other market sectors and not just in brick and mortar. Houses and units for rent makes for good investment, but diversification is important to offset risks.
Add other forms of investment such as ETFs and interest paying investments so as to have a wide range of assets.