8 Disadvantages of Real Estate Investment

Money-HouseEven though it has many advantages, investing in property also has some disadvantages compared to investing in other sectors. It is not  apart from the the nature of property that cannot be moved, local, and diverse. An investor needs to know eight disadvantages of property investment in order to anticipate losses and to add value to the property. Here are the eight weaknesses of property investment:

1. Maintenance burden
The owner or investor cannot let the real estate investment develops continuously without making sure the property is in good condition. One also must spend additional cost of the building in order to maintain the building, to make the income from the rent increase.

2. High capital investment
Property investment can be said to be a capital-intensive investment. Why is that? Because the greater capital invested in the property, the greater the results obtained from the investments.

3. Investment affordability 
In the real estate business, prices reflect supply and demand conditions. Property prices are set by local market characteristics and trends that affect the demand and supply of property.

There is one significant difference between the rate the property and stock, which is affordability.  Affordability is not an issue of the shares, as the share purchase transactions are done ​​in cash. In contrast, property transactions usually a leveraged purchase involving financing from banks.

4. High cost transaction
To invest in real estate, you have to spend a higher cost than investing in other sectors. These costs are in the form of taxes and other administrative expenses.

5. Time consuming acquisition
Buying property as desired cannot be in a short time, it could be in a matter of weeks or months. It is also described in the illiquid nature of property (lack of liquidity).

Even an expert of property of the United States said, look for 100 properties, select three of the best to get the desired properties (Formula 100:3:1).

6. Lack of knowledge
Knowledge is limited due to localized properties. The price of a house in one place is not necessarily the same as anywhere else. This makes investors should be observant and make on-site survey of the desired location.

7. Building depreciation
Unlike land that is eternal, buildings have their age limits. Theoretically, buildings can last for 20, 30, or 40 years, depending on the function, quality, and construction.

8. Physical hazard
Compared to other investments, property investments have a risk of destruction of land and buildings that could be caused by earthquakes, landslides, tsunamis and others. However, it can actually be overcome by insurance, so devastation can be fixed by an additional cost to pay for insurance.

Image credit: pinefinancialgroup.com 

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