Disadvantages Of Real Estate Investing
Some disadvantages of real estate investing are:
A. High Cost: The biggest disadvantage with real estate investment is the high capital requirement. To get started, you need to provide for down payments, EMIs, insurance, property taxes, stamp duty and so on. Given the high transaction costs, finding buyers and sellers readily is an uphill task. This is a primary reason as to why most people resort to loans for buying property.
B. Long Term Investment: Real estate investments are always made as a part of a long-term strategy. Real estate is a tangible asset and cannot be easily liquidated in case of an emergency. Moreover, frequent buying & selling involve high transaction costs that make liquidation an expensive affair.
C. Legal Difficulties: Investing in real estate is tedious as it involves a lot of paperwork as well as cumbersome formalities, more so in the case of commercial real estate. Some jurisdictions also enforce land ceilings which can make the investment even riskier.
D. Liquidity Constraints: Real estate property is very illiquid. A huge amount of money gets locked up as it is difficult to readily find buyers and sellers. Rental income also requires time to find a suitable tenant.
E. Maintenance Cost: Maintenance costs are exorbitant in many cases. In larger cities, high property taxes make it an uphill task to sell the house at a higher price. The owner must also bear monthly expenses related to upkeep of the property, especially if the property is located in a housing complex.
F. Property Taxes: Property taxes will vary depending on the jurisdiction in which the property is situated. An investor must also factor property taxes while valuing the property as it has the potential to wipe out a large chunk of profits.