Real estate investment is very popular as one of the recommended investments. It has numerous advantages which is why many people opt for this investment. It is also quite stable for a long-term investment. People usually trust this investment because they believe real estate property will always be needed and it would definitely increase in value over time. Investing in real estate also requires strategy because if you would like to get the most profit out of the investment, then you would need to look at the area surrounding the property as well. The amenities would play a huge part in the value of the property and when it is developed into a city, then the value would only increase. These are some benefits you can get from investments, but when there are pros, there are also cons. This article would list down three reasons why a real estate investment is the worst investment. check out this link to find out how to upgrade your credit capability.
1 – Hard to convert into cash
Other investments like stocks and bonds can be exchanged for cash in a matter of minutes. Same goes for silver and gold. However, real estate investment is an illiquid investment that is mostly accessible for middle-class people. It is very difficult to sell real estate in all markets. If the economy is down, it is even worse and often, sellers would have to wait for more than half a year to obtain cash from the sale. It would not do you any good if you invest in an asset that you cannot withdraw money from easily.
2 – High transaction costs
There are a lot of costs in real estate investment which contributes to the high transaction costs. Every time a sale takes place, a huge amount of money will be given to the government. There are also other costs including, legal fees and appraisal and brokerage costs. All these costs are equal to 10% of the value whenever a transaction is done. This contributes to the illiquidity point and even if a buyer makes a mistake, they are stuck with that property because the transaction cost is too high.
3 – Employability
Investing in real estate forces an individual to settle in one geographical region. Due to the high transaction cost mentioned above, it is impossible for real estate to be bought and sold too often. This is one of the reasons people prefer renting than buying a house. Your opportunities become limited and you would have to settle for the chances available in that area. Many people now like to change jobs to earn more experience and opportunities and this era is also known as the era of layoffs so having bought a house becomes more of a burden than a good asset.
4 – Leveraged purchases
When someone invests in real estate, people are paying interest on huge parts of their money in hopes that the prices of the asset would increase. The problem comes if the price doesn’t rise. If it goes down, the investor would suffer from a great loss and even if the price stays stagnant, the investor will still face loss because they already pay for the interest using their salary. This makes real estate investment very leveraged.
It is important to consider before making any investments. These reasons show that a popular investment claimed to be good does not mean it is the best for you. Make your investment according to the suitability of your situation. Do not be hasty decisions because it may have a long-term effect on you. If you are interested in real estate investment, you can consider the area Pandan Indah at Kuala Lumpur because it is currently a popular place among real estate investors.