Property investment can provide high returns over long terms. However, there are both pros and cons involved with property investment and you need to consider them carefully before you decide to invest in commercial or rental property. You can get two kinds of returns from property investment-- from what you earn as rent (if you are renting the property), and from any increase in the value of your real estate property over time (known as capital gain). This makes it a lucrative option for investment and one can really gain high returns from property investment if everything goes right. However, there are certain downsides or drawbacks related to property investment that you should like to consider before taking a decision.
Things to consider
The first thing to understand is that managing your real estate property involves a good amount of work. If you are renting the property, you will have to find and manage the tenants, collect rents at time, and will also have to look after the maintenance and repair requirements for the property. You may take the help of a landlord software application or a property management software to assist you in this work. Alternatively, you can appoint the services of a property manager who will perform the above tasks for you and will keep in communication with you regarding the state of your property. However, you will have to pay the property manager a percentage of the weekly or monthly rent for availing these services.
Another important thing is that property investments are not liquid investments, which means that you cannot withdraw or liquidate your investment in a short time. You either need to increase the mortgage or sell the property to get your money back. This may not always be easy, especially if you are in a hurry to withdraw the investment. Moreover, additional costs such as real estate agent fees and valuation costs will be involved which will make further dents on whatever profit you are making. Therefore, property investment is typically regarded as long-term investment. Availing loans for property investment may also be bit of hard task for you. Many lending agencies have lower lending limits for properties meant for investment.
However, if you want to go for property investment, it is not always necessary to actually buy a property. You can also invest in property funds. The property funds normally own properties such as shopping centers, factories, and office buildings. Or they may own shares in property funds that own the above kind of property. When you invest in a property fund, you will receive income if the fund sells the buildings or makes profits on rents. There is also the possibility of you receiving capital gain from a property fund if you sell when the fund price has gone through an increase. The advantage with investing in property fund is that you don't need to worry about real time management of your property. The funds also give small investors an opportunity to diversify their property investment portfolio.