Investing in real estate is a great idea for several reasons: Over time real estate values tend to at least keep pace with inflation if not exceed it; properties often generate annual returns (income) on the investment; and investors can take advantage of tax benefits that may not be available in other investments. However, investing in real estate also has a few disadvantages. Here are three of them:
^ Real estate isn't considered a liquid investment. Investment liquidity refers to how easy it is to turn that investment into cash. If you own stocks, for example, in most cases you can sell a stock by phone or computer and have a check in a few days. Even an all-cash real estate transaction with no complications takes several weeks (if not months) to complete. In short, your money's tied up.
^ Despite what the no-money-down gurus say, real estate investments usually require a substantial amount of cash for a down payment and money in reserve should you end up with too much vacant space or too many vacant apartments. These investments usually require some level of management and involvement in property management decisions too.
^ Real estate investments don't always turn out to be profitable. Downturns in the economy, overbuilding, changes in tax laws, and unexpected property repairs all can have a negative effect on a property's financial return, so real estate investing can be a risky business.
So what should an agent do with this not-so-nice information? As an agent, this information is useful to keep a client's overly optimistic expectations in check. It also keeps your own desire to present the investment property in the best possible light within realistic parameters of factual data on current income, local vacancy rates for that type of property, and the physical condition, if known, of the property. You can guarantee very little about an investment unless you happen to have a really good crystal ball.
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