Advice On Investing In Property

by skorg

posted on 05/18/2009

Mark Twain once said - "Buy land, they are not making any more of it". How true and today we will look at the pros and cons of property as an investment.

It is always a good idea to read all the Investing lessons in order to get the maximum benefit.
Lesson 1: Basics of Investing - http://www.advice.com/latest/article/2009/05
/11/Advice+on+Understanding+the+Basics+of+Investing
Lesson 2: Beginning to Invest - http://www.advice.com/latest/article/2009/05/12/Advice+on+Beginning+to+Invest
Lesson 3: Mutual Funds - http://www.advice.com/latest/article/2009/05/13/Advice+on+Mutual+Funds
Lesson 4: Investing in Gold - http://www.advice.com/latest/article/2009/05/15/Advice+on+Investing+in+Gold

You might think that currently the article holds no good with real estate prices crashing, but you will still be able to find gems amidst the heap of junk. As of this writing several countries have population that are growing at an alarming rate. The surging population will render the real estate costs on the higher side year after year. One often hears that a site purchased a few years back for say x$ is now selling at 2.5 times and so on. In most cases property appreciation is in the order of 10-40%. That is enormous considering the fact that the risky stock markets also cannot give such returns on a regular basis. The risk involved is lesser as a carefully chosen property will rarely give negative returns (unless of course you just buy into the hype). They can give additional income like rentals. They are a good hedge against inflation as rarely you will find a property costing less than what it was say 20 years back (with respect to the same rise in general price - inflation). Pride is attached with ownership of a property.

Then why not everyone drop the idea of investing elsewhere and go for property alone. The immediate answer is diversification but the chief blocking point is that investments in property are way too costly. You cannot go and invest a few thousand dollars in it. Unless you have quite some disposable cash, you cannot think of investing in property. (Of course with the advent of real estate funds, this could be solved to some extent). Also you have to be extra careful as there are many bogus operators and you could be easily cheated and the money involved is quite high as well. The liquidity part is also alarming as to dispose a house and book the profit, it might take anywhere between a few months to a year, especially when times are not good.

Having said all this, there are other advantages that outshine. You can opt for a home loan where-by you can avail of tax benefits (in most countries). If a home is purchased for self-residential purpose then you have your own house to live in (no more rents) and the joy of which only people living in rental houses bugged by their house owners can realize. You can decorate it as you like, nail anywhere any number of times, and most important of them all, you need not change your address with a dozen people (banks, electricity board, telephone etc) as you will not be jumping from one rented house to another. In short, it becomes your home rather than just a house.

But if you insist on the property being only for an investment, then buying sites makes sense rather than houses as the appreciation in sites are far better than built houses and they can be disposed off rather easily (in most areas) rather than an already existing structure. Of course there are exceptions here too and the fact that you have to forgo the rentals. Yet another interesting prospect is to get land near the main areas and setup space for shops and offices.

The options are many when in comes to properties but the investment cost is also on the higher side. In general if you don't have any other investments, then jumping into property might not be a good idea. But for those who are well placed property adds to the diversification and a strong case for an attractive investment. We will jump to stocks and the share market from the next article.

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