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Pros and cons of real estate investment

Real estate has always been an important method of wealth accumulation and investment. In the previous centuries, it was considered a type of private property. However, in the 21st century, the superiority of real estate has led to the preeminence of intangible assets. Historically, after the industrial revolution, the general standard of living has increased, the availability of funds also increased and so did household savings. Usually, household savings are stored for a relatively long time until they achieve desirable and expected amounts. Investment in real estate is defined as purchasing an intangible property that will serve for future commercial use and is not for personal residence.

Top Five Advantages of Real Estate Investment

Real estate seems stable and attractive for investors for several main reasons:

  1. Its ability to grant absolute returns.
  2. It’s the potential to maintain steadiness against unexpected inflation.
  3. Real estate can be updated.
  4. Its ability to provide regular revenues.
  5. Unlike the stock market, real estate properties exist and have value even in an inefficient market.

However, some of the attractive attributes do not always come without costs.

First, high transaction cost differentiates real property from the stock market. Second, low liquidity, as it can not be sold for profits immediately. Third, it requires constant maintenance and fees, including taxes and insurance. Fourth, unexpected inefficiencies, usually before purchasing, investors do not take time going through all the details and features of the property. Due to the lack of information, they may later encounter difficulties through maintenance and management processes. And the last disadvantage is that this kind of property creates liability for damages and still carries a risk of financial losses despite its stable character.

A Way to Increase the Real Estate Liquidity

As mentioned above, liquidity refers to fast profit gain from the investment. Real property investment usually lacks this attribute; however, some investors may refer to the “flipping.” The process is when an investor buys the property for a lower price and then sells it as quickly as possible for a higher price. So “flippers” do not usually hold their properties for a long time. There are two basic types of “flipping” – renovation and repair; this type includes specific work and management. Another way is to hold and resell; it does not imply any kind of technical updates; investors buy properties, leave them on their own for some time, and then resell for a profit. However, this kind of practice usually brings in less income than the update and repair method. The weakness of this plan is that it is not easy to sell real estate quickly, even online. Thus, online assistance is a helpful tool to raise awareness among potential customers. Digital markets such as StreamOZ provide their customers with effective social media services that are convenient not only for real estate but also for other types of sales and promotion.

What Encourages the Investors to Purchase the Property?

According to economic theory, an investment is an input of present value for future questionable revenue, but with a fair return volume. This approach states that investment envisages three variables, risk, return, and liquidity, and creates the investment triangle. Based on this information, the general investor tries to decide on a purchase. Moreover, the interaction between all three variables is what affects investors’ behavior as they expect a higher income on higher risk and a lower gain on low risk. Additionally, liquidity means the ability to convert an investment to money in a short period at the market price. However, these variables do not determine an investor’s decision-making process, as individual investors consider many other details; this triangle is a mere part of every investment.

Two Cardinal Phases Of Investment

The process of the investment activity can be divided into two phases, the pre-investment phase, and the investment phase. During the pre-investment phase, the investor collects and evaluates the cost-related information and papers on the potential investment. And often, after risk analysis, an investor might decide to withdraw; this also happens in case of administrational problems such as failure to get approval for construction from officials or due to personal reasons. The investment phase follows the decision process; this time, the actual exchange happens, and the investor is at risk of unplanned completion and unexpected complications.

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