The Risk And Returns Involved In A Real Estate Investment
Is real estate the best investment mode compared to other asset classes? This largely depends on the amount an investor puts into the market and the kind of property. The property market has seen major developments and reforms but at the same time also witnessed a prolonged slowdown. This was the time when the entire world was going through the recession.
As we all know, residential real estate is the traditional mainstay of the property market. Rising disposable income, nuclear families, burgeoning middle-class, convenient interest rates are few reasons behind the growth of residential real estate market. Investors put in a huge amount of money with an aim of higher returns on investment. Many of them may give little notice to the risk involved in the various properties.
The property market is not without risks. Therefore, it becomes all the more important to invest carefully. Here's a look-
- Commercial real estate, which mainly comprises of office spaces and business centres, is at a minimal level of risk and return. These are stable properties which can be seen in prime locations. These properties generally have steady occupancy with good and valued tenants.
- Then next is the condition and age of a given property. An aged property in a very good location could also be promising from the returns perspective. However, the risk could be the age as it tags along with high maintenance charge plus some amount of reconstruction that may be required.
- Are you buying a property at a low price and holding it for a good couple of years, waiting for the market to appreciate and then selling with an intention of high price? The risk involved here is the huge chunk of money for reconstructing, which will be added with the buying amount. Plus, the waiting time. There is no surety of when the property market will see an upsurge and time can be extended with no real conclusion.
- Foreclosed property has the highest risk and return. Investors generally fear of investing money in such a kind of property as it involves a high amount of risk. But if the property is being invested wisely keeping in mind all the consequences and selling it further to a potential buyer; it could be a great deal.