Why property investment is bad?
Real estate investments can be lucrative, but it’s important to understand the risks. The main risks include poor locations, negative cash flows, high vacancy rates and problematic tenants. Other risks to consider include lack of liquidity, hidden structural problems and the unpredictability of the real estate market. Tenants can create problems and cost you money and valuable time, which is wasted in court.
If you own rental property, your cash flow can be significantly affected if you end up renting out to a tenant who doesn’t pay, leaves the property in very poor condition when you move out, or both. Unlike investing in stocks, real estate is an investment that you must keep throwing money at. Two good real estate cycles are then required to build up an extensive asset base of investment-grade real estate. For this reason, you have little control over sales on an investment basis, as you are likely to sell it when it no longer fits your lifestyle, not when it is cheaper in terms of return on investment.
To illustrate why I’m going to compare investments in physical real estate with investments in the Vanguards Total World Stock Market Index Fund. In my opinion, this is not an investment strategy — it is a short-term financing strategy that only makes sense if it is used to buy investment-grade properties with high capital growth. There is an area that is not well promoted by DHA on the investor real estate for sale website, i.e. investors who are trying to unload bad investments. These are also emotional reasons for buying a property, rather than making decisions based on solid investment bases.
However, this is obviously the time of the real estate cycle when you need to be more careful than overly optimistic about your investment. Real estate in the inner and middle ring suburbs, particularly in gentrifying locations, will outperform cheaper properties in the outer suburbs. If you stick to a proven investment strategy, you’re obviously more likely to buy an investment-grade property and not make that kind of mistake. If you adjust to risk, effort, and time, investing in the stock market is undoubtedly a better option for most people than investing in physical real estate.
It’s not an endorsement to invest in this particular fund, but I’ll use it to illustrate the simplicity of investing in stocks versus real estate. Many investment professionals know that homes are bad investments, but according to Gallup, the general public thinks real estate is a better investment than stocks. If you’re afraid of debt and many people do it because they don’t fully understand the difference between bad debts and good debts, you should of course stay away from real estate until you better understand the power of leverage, compounding, and time spent on well-located properties. In fact, you have much more control over your overall investment success with real estate than with other asset classes.