Returns and Downsides of Real Estate Investing
Every investment comes with advantages and disadvantages. You cannot overlook the risks involved in any investment for the sake of profit. Also, getting reluctant in making investments due to risks is not appropriate. Below are some advantages and disadvantages you need to know before entering in real estate investing.
Returns involved
Operating leverage:
The amount of fixed cost involved in real estate investment is comparatively more to the total costs. The movement of fixed cost and total costs can be explained in terms of the relationship between sales volume and profitability of a property. Whenever a property has a large proportion of fixed costs, it is likely to benefit from operating leverage. Commercial properties are good examples of operating leverage.
Financial leverage:
A rule of thumb to remember is ‘’Borrow to buy, sell for cash.’’ Look for those properties that provide you more financing. In order to identify various investment opportunities, follow a particular strategy which involves acquisitions. Acquisition strategies are designed for the purpose of minimizing the cash necessary to get into an investment.
Tax advantages:
Fixed assets are subject to taxes as well as depreciation. Depreciation is a non monetary deduction used to offset revenue that would otherwise be subject to taxes. You can depreciate your property and show a loss on it, further using that loss to reduce your income. Lower income is subject to lower taxes.
Potential Drawbacks
Government Policies:
Real estate investments are surrounded by government policies and regulations. These policies are vague and confusing. They include property transfers, construction activities, rent control procedure etc. It is however obligatory to hire a reputable and experienced real estate lawyer. Your lawyer can provide proper advice and assistance.
Difference in value:
Prices of properties vary from each other. The real estate market is variable. Two properties can never have same worth. Therefore, such variations should be taken into account before stepping in the real estate market.
Liquidity:
It is always fine to estimate your costs and benefits likely to be gained from any investments. However, desiring immediate cash is useless. Real estate investments require endurance. You need to watch the market movements before selling your property. Market movements are subject to various factors. These factors include political and socio-economic factors. You have to give your property enough time to get appreciated and provide you with maximum profit. Real estate investments are the only investments that can even take decades or more to earn you incredible yields.
Every investment comes with advantages and disadvantages. You cannot overlook the risks involved in any investment for the sake of profit. Also, getting reluctant in making investments due to risks is not appropriate. Below are some advantages and disadvantages you need to know before entering in real estate investing.
Returns involved
Operating leverage:
The amount of fixed cost involved in real estate investment is comparatively more to the total costs. The movement of fixed cost and total costs can be explained in terms of the relationship between sales volume and profitability of a property. Whenever a property has a large proportion of fixed costs, it is likely to benefit from operating leverage. Commercial properties are good examples of operating leverage.
Financial leverage:
A rule of thumb to remember is ‘’Borrow to buy, sell for cash.’’ Look for those properties that provide you more financing. In order to identify various investment opportunities, follow a particular strategy which involves acquisitions. Acquisition strategies are designed for the purpose of minimizing the cash necessary to get into an investment.
Tax advantages:
Fixed assets are subject to taxes as well as depreciation. Depreciation is a non monetary deduction used to offset revenue that would otherwise be subject to taxes. You can depreciate your property and show a loss on it, further using that loss to reduce your income. Lower income is subject to lower taxes.
Potential Drawbacks
Government Policies:
Real estate investments are surrounded by government policies and regulations. These policies are vague and confusing. They include property transfers, construction activities, rent control procedure etc. It is however obligatory to hire a reputable and experienced real estate lawyer. Your lawyer can provide proper advice and assistance.
Difference in value:
Prices of properties vary from each other. The real estate market is variable. Two properties can never have same worth. Therefore, such variations should be taken into account before stepping in the real estate market.
Liquidity:
It is always fine to estimate your costs and benefits likely to be gained from any investments. However, desiring immediate cash is useless. Real estate investments require endurance. You need to watch the market movements before selling your property. Market movements are subject to various factors. These factors include political and socio-economic factors. You have to give your property enough time to get appreciated and provide you with maximum profit. Real estate investments are the only investments that can even take decades or more to earn you incredible yields.
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