Risks and Rewards of Real Estate Investments

As Pakistan’s economy alleviates and becomes steady, the purchasing power of the people is also further increasing. The value of property in the metropolitan cities of Karachi, Lahore, and Islamabad is increasing immensely.

Just as every other investment has its pros and cons, similarly, real estate investments have their own risks and significant potential rewards. However, to gain those significant rewards due diligence is greatly required. Moreover, you either can work out everything yourself or you can utilize the services offered by real estate agencies or real estate agents to gain those rewards while mitigating risks.

Risks and Rewards of Real Estate Investment

Here in this article, we’ll be discussing the risk and rewards of real estate investments which can be proactively utilized by the investors to earn increased rewards as the return of investment.

Without any further ado, let us dive into the rewards of real estate investments

Rewards of Real Estate Investments

Just as every investment comes with its own rewards, similarly, real estate investment also offers greater rewards on return of investment.

Discussed below are the pros or rewards of real estate investments.

Easily Understandable

Making investments, it’s important that as an investor, you have developed a clear understanding and know-how regarding every basic and abstract concept, complex algorithms in order to make the investments and gaining rewards of return of investments without any difficulties

Real estate investment comprises purchasing physical property and this action is something that people are commonly aware of to some extent. Therefore, making real estate investments is much easier and simpler as compared to other means of investments.

Hedge against Inflation

Real estate property investments are the only type of investment that is directly proportional to the inflation rate, hence considered as a hedge against inflation. Meaning that when the inflation rate is increased, the value of the property is also increased.

Improvable

Stocks and other sorts of investment, the investor buys the stocks or product, holds on to it, and then sells them to gain profit. However, the profit there depends on various different factors such as corporate success, company management, quality, and other economic factors as well.

Unlike other types of investment, real estate investment has tangible meaning that you can physically see and touch your investment and therefore, you can increase its value tangibly as well. While the demographic, geographic, or economic changes are out of your control, you can still enhance the worth of your real estate property with good management.

Risk of Real Estate Investments

Although real estate investments have numerous benefits and rewards, however, every reward has its own risks, similarly, real estate investment has its own risks but with proper management and guidance, real estate investment risks can be mitigated.

Discussed below here are the risks of real estate investment.

High Transaction Cost

The major drawback of real estate investment is considerably higher transaction costs. In other investments, such as stock shares, etc. the purchasing cost or transaction cost is usually low, and earning a significant profit is also easy.

Whereas, in real estate investment, the transaction cost is relatively higher than other kinds of investment which in turn greatly affects the worth of the investment while earning a greater profit becomes a challenge itself.

Illiquidity

Stock shares, high-frequency stock sharing, and other investments have a higher liquidity rate meaning that the investment can easily be sold on short notice while earning a good payback as a return on investments.

Whereas, the real estate investments are illiquid. Meaning that real estate properties can’t be easily sold on very short notice and that too without any significant loss in profit of return on investment.

However, the risk of illiquidity can be mitigated if you as an investor have either done your homework properly while preparing your property beforehand or you have the assistance of an experienced real estate industry expert.

Maintenance & Management

After making a real estate investment, another major drawback is the maintenance and management of the real estate property. As an investor, it is important that you clear out all the dues such as real estate taxes, society management, and maintenance costs, insurance, etc. as all these costs tend to accumulate rapidly which in turn would decrease the worth of your real estate investment.

Conclusion

As said earlier, just as every coin has two sides similarly, real estate investment also has its own perks and cons as well. However, a good real estate investor is one that has the knowledge and knows how to leverage both the pros and the cons of real estate investment to gain a profitable return of investments over the investments made.

Deal and Deals (Pvt.) Limited is Pakistan’s leading real estate agency that offers top-notch professional consultation services while guiding you through your next big investment. Blue World City Islamabad and Lahore Smart City are currently the best investment opportunities we have for you.