Introduction
People are always looking for various options for investment. One such evergreen method of investing is real estate. People invest in real estate as it is less risky and a very old form of investment.
You can invest in real estate through residential as well as commercial property. In this article, we will try to understand the pros and cons of investing in real estate.
Pros of Investing in Real Estate
Investing in real estate has many advantages. Let’s go through some of its advantages:-
- Property Appreciation
Real estate has huge potential for property appreciation. Generally, the price of property rises with the passage of time. You can buy the property at lower rates and sell it when the price of the property increase. This will help you earn higher gains.
- Tax Benefits
Real estate investment comes with tax benefits. In India, if you buy a residential property through a home loan then you are eligible for tax benefits. Firstly, you are eligible for deduction under section 80c. Secondly, the interest on a home loan is eligible for deduction under section 24.
- Generates Cash Flow
Real estate can help you generate consistent cash flow. You can buy residential as well as commercial property and then give it on rent on the lease. This will give you consistent income every month.
- Diversification of Asset
The price of real estate is not affected by market fluctuations like stocks, mutual funds etc. In fact, it has a negative correlation with these assets. So, by investing in real estate, you can get the benefit of diversification in assets.
- Benefit of Leverage
When you borrow money to invest or increase the returns it is defined as leverage. By investing in real estate, you can take maximum advantage of leverage. You can get a loan for the purchase of the property.
Rent out the property and earn regular income. In addition to rental income, you also earn gains when you sell the property after appreciation.
Cons of Investing in Real Estate
Along with several benefits, real estate also has several disadvantages which are as follows: –
- Requires Huge Finance
Investing in real estate is not so easy. It requires huge finance. Firstly, you will need a down payment to book your property. After this huge money is required for documentation. And even after you buy property there are regular expenses involved in maintaining the property.
- Dealing with Property Takes Time
Buying and selling property is not so easy task. It takes a lot of time. Firstly, you need to go through various properties and clients. Even after the deal is finalised, then documentation, loan process etc too requires time.
- Requires Professional Assistance
Investing in real estate is too lengthy a process. A lot of documentation is required. It’s difficult to handle this task alone and requires the help of professionals who deal with this.
- High Maintenance Cost
Even after renting out the property, you are not free from the burden. Because you need to pay for maintenance expenses of the property. Any repairs to the property also have to be managed by the owner.
- Capital Gain Tax
Capital gain tax is applicable if the property is sold at a higher price. Short-term capital gain is applicable if the property purchased is sold within 3 years of purchase. Long-term capital gain is applicable when a property is sold after 3 years of purchase.
Conclusion
Investing in real estate has its own pros and cons. So before investing in real estate, one shall do a proper analysis based on one’s income and investment preference. It can generate a good monthly income source and also has the benefit of capital appreciation. But at the same time, it also requires huge financial resources and regular maintenance.
