Real Estate

If you are considering a career move to or investment in the real estate market, it is important to fully research and comprehend the benefits, pitfalls and cost of this venture. While the payoff for your investment can be well worth the initial cost, it is important to understand that this initial cost can be very high, depending on the property. Educating yourself on other potential pitfalls like poor liquidity, the high costs of maintenance and the risk of market fluctuations can help you better understand the process and prepare you for future issues that may arise in the world of real estate.

Benefits

Real estate is an ever-growing market that rewards hard work and creativity. With the merging of real estate and the Internet, the ability to quickly hunt down deals for your clients (or yourself) has never been easier. There are many reasons and benefits for becoming involved in the real estate market, but only a few of many will be covered here.

Constant Demand

No matter how bad the economy is nationally or around the world, housing and commercial businesses are always needed and are always being sold. This means there is always a way to make a profit through the craft of real estate, no matter how bad the economy gets. Real estate agents can rest comfortably knowing that there will always be someone, somewhere, who will want their product. The National Association of Realtors Profile of Home Buyers and Sellers indicated in 2010 that the most used form of research that buyers were using for information about new homes was the internet. This resource was used 74% of the time, while the knowledge of real estate experts was used 69% of the time.

No Pay Cap

Unlike traditional jobs, with real estate you aren’t limited by a pay grade or position in the office. You will make money based on how much work and effort you put towards selling a property. Since you are only paid from the commission of a sale, your pocketed pay is directly related to your work. With real estate you are practically your own boss.

Prosper In a Down Market

Even when the economy is bad, you can still profit in real estate because of the constant demand that was mentioned previously. There are very few job markets that won’t be affected by the state of the economy. Real estate is one of them. So, you should take advantage of this thriving market.

Even Foreclosures Are Good

When most people hear the word “foreclosure,” it is usually on bad terms. As such, most people avoid it like the plague. Within real estate, a foreclosure usually means an opportunity to greatly profit off of the amazing deals that hit the market. Whether it is a foreclosure, short sale, or bank repossession, a real estate agent can prosper.

Pitfalls

High Capital Investment

Real estate usually involves a substantial amount of capital investment. Most investors may not have such amounts of money readily available. This may require them to purchase investment through loans at high rates of interest. Therefore, the interest, acquisition, and mortgage costs get added to the overall cost of the property. However, there is no guarantee that the investment may achieve a secure rate of return on investment.

Compared to the high initial costs of investment, many financial advisors are of the view that renting a property may turn out to be a cheaper proposition in the long run. Rental costs in the prevailing economy are fairly low because of excessive supply of real estate. Therefore, many businesses and even households may opt for a rented property rather than making a heavy capital investment in real estate.

High Costs of Maintenance

While considering a real estate investment, the purchaser must also look at the additional costs that will be incurred to maintain the property in the long run. The insurance costs of buildings, commercial shops and offices, and homes can be fairly high depending on the market valuation of the property. The property owner may have to purchase insurance coverage against the risks of fire, theft, damages, and natural calamities such as earthquakes and floods.

Other costs of maintaining the property may include payment of property taxes, parking lot fees, repairs and renovations, and costs of maintaining standard building and safety equipment such as air conditioning, heating systems, elevators, and anti-fire and anti-theft systems. The property must also be maintained in conformance with the local environment and pollution laws, which may result in additional costs for the property owner.

Risk of Market Fluctuations

Real estate investments are subject to market risks. In a highly dynamic and complex market environment, it is difficult to predict whether a particular property will appreciate in capital value over a period of time. Many investors may lose on such investments in a volatile market. As such, this makes it a risky proposition for small investors.

Poor Liquidity

One of the serious disadvantages of real estate is the highly illiquid nature of this investment. If the property owner is caught in a financial emergency and is in need of urgent cash, it may not be easy to liquidate a real estate asset at a short notice. A distress sale of real estate may result in a substantial loss on investment for the property owner.

Pricing

Real estate is a broad topic. The numerous types of real estate each consist of various other subgroups. The general rules for pricing are still the same though. The Internet has enhanced the public’s ability to interact with properties, as shown in the 2010 National Association of Realtors Profile of Home Buyers and Sellers, which stated that 49% of respondents claimed they “walked through a home online as a result of an internet home search.”

The Three Costs of Real Estate

The three types of real estate are vacant land, residential properties, and commercial properties. Though the types sold differ to a fairly sizable degree, certain rules will always dictate the price. Location is always a huge factor when pricing real estate or determining its value. Better location means higher value. Additionally, going through a real estate agent will cause the amount of money you receive from a sale to be decreased by about 10%. The Internet has slightly decreased the reliance on agents, as many home and business owners have begun to list their properties online, where much less advertising and personal interaction are required.

Conclusion

Once you understand both the pros and the cons of real estate, you can make the best decision for your family or for your business. Real estate is in constant demand, so the market for the buying and selling of properties will always exist. Depending on the thoroughness of your investigation into the potential of the property, you can walk away from the transaction with a hefty profit. As with any investment, however, the potential for making a bad decision exists. These bad investments can alter your life, both personally and financially. Diligent research and education is the key to making good investments.