Real estate is an ever growing industry. Though be it the primitive age or the continued or upcoming high-tech times, real estate properties have always been the basic requirement for human kind in some or the other way. Real estate as an industry influence the gross domestic product growth or the economic growth of any country, as it includes construction and infrastructure as one of its parts. Also, real estate is directly linked with the standard of living and production capacity of any country or place. So it impacts the economy directly or indirectly. Hence, it serves to be a potential option for investment.
Real estate investments can be rewarding if done with proper understanding of its rewards and risks. Real estate is very attractive alternative as an investment, as it gives perceptible returns. At the same time, it is equally risky. Risks or returns depends on types of investment. Investments in real estate can be done in different ways. There is a possibility of direct ownership, that is buying a property as an investment. There can be a partial investment by means of co-ownership or lease. Also there is a real estate investment trust. Real Estate Investment Trust (REIT) manages publicly traded funds and so one can buy stocks or invest in REIT mutual fund.
When it comes to buying a property, potential risks will be; being aware of the current state of the market and being able to forecast the future trends of the property market. Buying a property is a massive investment and so it is important to know your market. Opportunity cost of investing in any other alternative investment would be high as real estate investment will grab all your cash and future income. It is not always easy to liquidate property. Moreover, it will be an undiversified investment. Also, the changes in rate of interests for loans will qualify for risk as it can affect your total budget or cash flows. Further, risks depend on the type of property and purpose of buying it; land – for agricultural purpose, for construction, or anything else, residential – to live in it, to give it on rent, etc., commercial – office, production unit, etc. for own business or maybe to rent it to other groups, or so on.
However, buying property has its own potential returns. First of all, expenses from owning a property is tax deductible. Further, value of property increases with time and so it is a capital growth and it serves as an extra source of income when it is fully paid and fully owned. Moreover, owner of the property has rights to influence, that is make required or meaningful changes to the property to enhance its value. Properties can be very rewarding if employed thoughtfully. Owned properties can generate revenues by various means like renting. Even if the property is residential and meant for living with family it cuts down your monthly expenses and add an asset to your personal property.
REIT mutual funds can be considered in case you feel the upside trend in real estate industry and do not want to make massive investment. This type of investment can be done with lower capital and so it is worth a place in your portfolio.
Risk and returns of real investment depends on various factors. Altogether, it is a potential investment when done wisely.