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Pros and Cons of Real Estate Investing at a Young Age
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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
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They say, investing at a young age increases the chances of its benefits. The same applies to investment in real estate. However, just like any other form of investment, there are certain pros and cons of real estate investments. That is why you must consider each one of them and be meticulous while investing in real estate.
Let’s first understand what are the pros of real estate investment are at a young age
Easy to Understand
Following and understanding different forms of investment like mutual funds, etc. take a significant amount of time. This is because, many investments are based on abstract concepts and algorithms, which make them difficult to understand.
However, real estate is very straightforward as it involves buying a property. With basic research, you can get the gist of investing in real estate.
More Control
The success of other forms of investment like stocks or bonds depends on various factors that you cannot control. But, you have more control over the success of a real estate investment. You can increase the value of your property with proper management of your real estate portfolio.
Unaffected by Inflation
Growing inflation generally has adverse effects on many types of investment. However, real estate is one of the very few assets that is usually not affected by inflation.
Tax Benefits
Investment in real estate can help you save on your total tax, as when you purchase a property by taking a housing loan, you are entitled to tax benefits. The interest you pay on the EMIs of home loan is deducted from your tax amount.
Good Appreciation Rates
When you start investing in real estate from a young age, you get more time to experience the appreciation of its value. The appreciation rates of properties are influenced by several factors like location, demand, etc. So, any change in such factors holds excellent chances to increase the price of the property.
For example, a house in a prime location of a city can experience an annual appreciation of 10-20% over a long period.
After the pros, let’s understand the cons of real estate investment.
Higher Transaction Cost
Compared to the value of stocks, the cost of buying a property is significantly high. Therefore, purchasing a property at the beginning of your career can be difficult when you are willing to invest in real estate at a young age.
Low Liquidity
Investments like gold or stocks are highly liquid, and thus, they can be purchased and sold within a short time. However, it may take considerable time to sell a property, which makes it difficult to liquidate over a short period.
Cost of Management
Properties need to be adequately managed to get profits from them. The maintenance includes several expenses such as taxes, insurance, etc.
Inefficiencies of the Real Estate Market
The real estate market is less transparent compared to other forms of investment. These inefficiencies affect the value of the property and therefore, the anticipated profit on them.
As there are several pros and cons of real estate investment. Therefore, as a buyer, you should decide by considering every one of them. However, proper research and taking advice from the experts of the market can help you to turn your real estate investment into a profitable one.
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