Why real estate is good investment

Published by julia | Filed under Buyer / Seller Tips, Miscellaneous, Real Estate

In lieu of economic crisis, people look for investments that can safely rake in profits. Real estate is highly favored not only because of the sure returns, but also of the high profit. Why this kind of investment continues to strive even during a bad economy boils down to its necessity. Need for housing is basic, and while population continue to increase, it is but right to expect a rise in real estate demand as well.

We find that more people purchase housing properties. Along with having more residential units comes development. Not only are houses put up, there are also commercial institutions being built. As a result, there is lesser space available. The value of land rises, and profits increase as real estate appreciates.

Real estate can’t help but appraise in value. Every year, it has to continue to increase. That is why people opt for this as a means of storing wealth. Returns here are tangible. Investors find it lucrative as it is often used as a back up for any loans made.

Appreciation rate of real estate is more or less 5% every year. This may not sound much, as there are other investments which appear to be more profitable. However, if you take a closer look, there is more to this figure than it actually appears. Usually, a 20% down is required for the first year. In this case, you shed out 20% and gained 5% on the same year. That is about 25% return on investment. To make this point clearer, let’s say a house investment of $250,000 will have an annual profit of $12,500. With 20% down payment, you pay $50,000. You shed out $50,000 and gained $12,500, or 25% return on investment. This is obviously bigger than any you have seen.

There are other fees to consider, such as taxes and mortgage fees. Good thing about real estate, however, the government subsidizes the fees. Hence, you profit from your property and at the same time enjoy tax advantages.

Advantages of real estate venture do not stop there. The piece of property can be rented, leased out, or resold. In reselling, properties can be renovated and improved first to boost their value. Whatever way you choose to make money, this is coupled with appreciation, so you have two-way profits.

Are there any risks in real estate investment? Like in any other businesses, there could never be a completely risk-free investment. However, as mentioned, the risks are minimum, and the market is more stable. Like any other businesses also, it takes time, effort and experience to make sure your investment will go down the drain. Unwise decisions, negligence and ignorance can take their toll on your real estate venture.