Disadvantages of Real-Estate Investment (?)
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sathish-9886730012
Oct 7, 2011, 3:42:02 AM10/7/11
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www.es22.com/f : Disadvantages of Real-Estate Investment (?)
Real Estate Investment is surely an integral part of Financial Planning. Several Financla Distributors also sell Real Estate solutions. But take a look at our blog post ( courtesy Girish, Rel AMC). I thought the last point was a killer.
Real estate is an excellent long-term, wealth enhancing avenue of investment. However, it suffers from certain drawbacks.
1. It has extremely poor liquidity. You can sell a stock on the stock market instantly and get your payment within 3 days. Similarly, you can encash a mutual fund investment within an outer limit of a week. But you cannot dispose of real estate quickly and easily, even in a boom.
2. There are difficulties and dangers in verification of title when you purchase real estate.
3. Large amounts of money are required even for a single purchase.
4. Large amounts of money are required to make additional purchases, if you are willing to do so, when prices fall. For example. Let us say you have purchased stocks worth Rs 30 lakhs and also real estate worth Rs 30 lakhs. Both purchases have been made, when markets were high. Now the markets fall and both your stock market portfolio as well as real estate property are valued at Rs 20 lakhs each. You want to make additional purchases. You can buy stocks even if you have just Rs 1, 2 or 3 lakhs. But to make additional real estate purchases, you would need much more, perhaps even Rs 20 lakhs.
5. There is the presence of substantial black money components in real estate transactions. this leads to lack of transparency
6. There are high stamp duties to be paid on purchases of real estate.
7. Formalities pertaining to the purchase and sale of real estate are cumbersome.
8. Once you have purchased real estate, there can be administrative problems. You need someone to look after it. There are many problems associated with absentee landlordism, such as encroachment, squatting, deterioration of houses / apartments because of keeping them locked up, etc.
9. Real estate is easy to get into, but difficult to get out of, especially if you have made a mistake.
Collapse this postReal Estate Investment is surely an integral part of Financial Planning. Several Financla Distributors also sell Real Estate solutions. But take a look at our blog post ( courtesy Girish, Rel AMC). I thought the last point was a killer.
Real estate is an excellent long-term, wealth enhancing avenue of investment. However, it suffers from certain drawbacks.
1. It has extremely poor liquidity. You can sell a stock on the stock market instantly and get your payment within 3 days. Similarly, you can encash a mutual fund investment within an outer limit of a week. But you cannot dispose of real estate quickly and easily, even in a boom.
2. There are difficulties and dangers in verification of title when you purchase real estate.
3. Large amounts of money are required even for a single purchase.
4. Large amounts of money are required to make additional purchases, if you are willing to do so, when prices fall. For example. Let us say you have purchased stocks worth Rs 30 lakhs and also real estate worth Rs 30 lakhs. Both purchases have been made, when markets were high. Now the markets fall and both your stock market portfolio as well as real estate property are valued at Rs 20 lakhs each. You want to make additional purchases. You can buy stocks even if you have just Rs 1, 2 or 3 lakhs. But to make additional real estate purchases, you would need much more, perhaps even Rs 20 lakhs.
5. There is the presence of substantial black money components in real estate transactions. this leads to lack of transparency
6. There are high stamp duties to be paid on purchases of real estate.
7. Formalities pertaining to the purchase and sale of real estate are cumbersome.
8. Once you have purchased real estate, there can be administrative problems. You need someone to look after it. There are many problems associated with absentee landlordism, such as encroachment, squatting, deterioration of houses / apartments because of keeping them locked up, etc.
9. Real estate is easy to get into, but difficult to get out of, especially if you have made a mistake.
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