Real estate has continued to be one of the best markets to invest in, with the richest people on earth having some of their wealth in properties. There are many people out there who have managed to make a good return on their investment. Just like any other investment option, you will have to invest time and effort in the process. People think real estate is just looking at the property and buying it. You will have to look at a lot of factors before you can make your purchase. The return you are going to get will depend on how good you do your research. A good investor should be able to get it right most of the time. If you find yourself getting it wrong most of the time, then there is a good chance you will not make a profit in the end.
There are some pros and cons of investing in commercial property, and it is a good idea to know about them before you can start investing. You will then decide whether you can work around the cons and still make a good return on your investment. Below are the pros and cons of commercial property.
Property has over time proven to be a stable investment when compared to other markets. There are ups and downs in the market, but the volatility of this market is a lot less than other markets like stocks. This can be attributed to the fact that shares can be sold in seconds while selling a property will take a long time. There is almost always a demand for properties. The population growth means more houses are needed, and there are real estate markets that have demand growing faster than the supply. The value of properties also increased at a good rate, a property you buy today can be double its worth in ten years.
Ability to leverage the investment
Leverage in investment means being able to buy more with less. This is the case with property, where you put down the deposit on the property and the rest is financed by the bank. Instead of taking your $50,000 and buying stocks, you can take it and buy a $250,000 property.
Leveraging is great because you will be able to maximize the returns you get when you experience growth. If you have invested in the stock market and get a 10% return on your investment, you will get $5,000 on your $50,000 investment. If you get a 10% return on the $250,000, then you will have a $25,000 return. This means you will have a 50% cash on cash returns because you invested only $50,000 of your money.
Positive cash flow
Once you have bought the property you can rent it out. If the rent you are getting is able to cover your expenses, then someone else will be buying the property for you. You just put down the deposit then let the renters pay for the mortgages and expenses. If you do it right, you can be left with some, which is a passive income and positive cash flow for you. With the right properties and time, the cash flow can grow and even fund your lifestyle, and you can even decide to quit the job.
Property can have some tax benefits. You can claim tax benefits. If you are making losses on your property, it can be offset against your income and this will save you on taxes. You can also claim depreciation on fittings and fixtures and other things, which will save you a lot on your taxes.
Commercial property is the option for many because it is great as a long-term investment. Land cannot be manufactured, and so the land you have will still be beneficial in the future. Inflation takes place over time, and this increases the dollar value, which means rent will keep going up, provided you choose the right location to invest in. The positive cash flow you get can be used in funding other investments or your lifestyle. Commercial property is a great tool for investment in the long term.
Not very liquid
When you have stocks, you can sell them in a matter of seconds, but selling a property will take a little more time. Depending on the location of your property, it can take weeks or even months to sell. This can be a con when you want money in a short period of time to use in other areas of your life.
Hidden problems associated with the property
You can do all the work that needs to be done including getting a building and pest inspection, making sure the property has been kept in the highest of standards, scrutinizing the applications by renters, but there will always be some hidden problem coming with the property. You will rarely get a property that is perfect that you are going to buy and forget about it. You will need to be ready to fix something, pay an unexpected bill, or a payment to chase up on. This is one of the reasons why people don’t invest in the property market.
High entry cost
You can be able to buy shares even with a couple of hundreds. For you to get into the property market, you will need to have thousands and thousands of dollars. The prices of properties have continued to grow, making it even harder to get in. This is what keeps many people interested from investing in the property market.
Tenants can have a lot of effect on cash flow when they don’t pay their rent. Bad tenants can also be a nightmare. They can cause a lot of emotional and financial stress. Property is not something you invest in and just forget, there is always something that comes up.
Investing the property market can prove to be a great financial decision you make, provided you take your time to research and plan before deciding on buying a property.