There are numerous advantages to owning a home or commercial property, including long-term price growth, no monthly payments, peace of mind, memories that will last a lifetime, and many more. Many people's greatest ambition is to possess their own homes. However, if you must invest in real estate, you should do so with caution.
It's amusing to hear our elderly relatives say how their real estate investment paid off just because they put in Rs 20 lakhs, and the property is now worth Rs 1 crore. Consider the investment's duration and other circumstances when calculating the real returns. The returns could be moderate or much lower than that.
Expensive Investment
We know that investing in property is the most important thing we can do. When you buy a house, you must pay several costs, including a stamp duty and entry fee, a broker's fee, a parking spot fee, interior service charges, a preferential area charge, and so on.
The middle class cannot afford to buy a decent home in a city without the assistance of a bank or non-bank financial institution (NBFC). When interest, processing fees, and other costs are added to the loan, the cost of the property rises even further. On the other hand, mutual funds can start from as little as Rs 5,000 simultaneously or Rs 500 per month.
Unpredictable Asset Type
Investing in real estate usually pays off nicely, either to luck or a lot of research. When a new runway, shopping mall, or other infrastructure is built nearby, the prices of surrounding properties skyrocket. Using highly competent labor, building to the greatest standards, and so on have little to no impact on how property prices fluctuate.
However, prices are mostly influenced by factors other than real estate, giving it a risky asset type. So, if you know immediately about regional projects that may cause real estate values to rise, you can make a prudent decision. However, such projects can be abandoned, and you could invest money in a property that does not pay off.
No Liquidity:
Liquidity refers to how simple it is to convert an investment into cash if necessary. For example, if you acquire gold as an investment, you can sell it in an emergency to cover an unexpected expense. Similarly, you can withdraw your money from an open-ended managed fund at any time by paying the exit load, if there is one.
However, a genuine asset might be extremely difficult to liquidate. It may not be easy to locate a buyer in a buyer's market. In addition, if you discover a buyer, he or she should be prepared to pay you the predicted amount when you need it. Furthermore, you cannot split or sell off a portion of the investment if you require a portion of it, as you can with most other kinds of investments.
Low Earnings
As previously stated, with a few exceptions, most properties produce ordinary or below-average lengthy returns. This is comparable to fixed-income instruments such as term deposits and low-risk investment options. Real estate investing is not a good approach to beating inflation. Even if you lease out your property, you will often earn less than if you invested in a fixed-income financial product.
No Distinction
Diversifying your portfolio entails investing in a variety of assets. Each asset type allows you to diversify your assets even further. For example, when you buy mutual funds, you diversify your portfolio by placing your money in various funds based on your investing goals and the risk you are ready to face.
Similarly, you can spread out your certificates of deposit by depositing them at other banks and financial institutions. However, because real estate is so expensive, a middle-class person may be unable to purchase more than one residence. It's also difficult to manage assets in different locations, even if you've invested in separate properties in different locations, to diversify your risk.
You'll probably outgrow the house
Our family's demands and requirements alter as we progress through life stages. After a few years, the house appears to be a fantasy home that may not be suitable for your family. There are numerous reasons why you may outgrow your home. For instance, the house you buy today may not be large enough until you have children or marry.
As your work progresses, you may wish to relocate to a larger home or a different neighborhood. When you retire, you may prefer to live somewhere peaceful outside of town, or your children may need to relocate for school or work, among other reasons.
High-Maintenance Property
Even after you purchase the property, you must continue to pay taxes, maintain it, and so on. Furthermore, if you rent out your house, there is a potential that it will be destroyed, costing you extra money. Real estate isn't a viable investment with all of these fees.
Conclusion
When most people acquire a house or other
property, they feel better regarding themselves and their lives. But, before
investing in real estate, you should know that it is not a nice picture. It's a
high-risk, low-return investment that most of us should avoid.
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