Before you begin investing into property, it is important to understand the pros and cons, as there is a lot more to property investment than initially meets the eye. Recognising the pros and cons will equip you with the knowledge to make the right decision about an investment.
Pros
- Less volatility: The property market is usually less volatile than shares or other investments. Therefore, there is less of a risk of sudden drops in value.
- Income: The income from property investments can be generated through rent if the property is tenanted.
- Capital growth: If the property increases in value over time, then when you make the decision to sell, you will benefit from a capital gain.
- Tax deductions: Most property expenses can be offset against rental income. This includes interest on any loan that was used to buy the property.
- Physical asset: The investment is something you can physically see and touch, as opposed to shares which are difficult to conceptualise.
- No specialised knowledge required: Compared to other complex options for investment such as shares, no particular specialised knowledge is required to invest in property. You only need to keep an eye out for drastic changes in the market.
Cons
- Cost: Although you might make rental income, this won’t necessarily cover the costs of mortgage repayments and other expenses.
- Interest rates: If there is a rise in interest rates, this will mean higher repayments and lower disposable income.
- Vacancy: When there is a tenant, you may be making some income from the investment, however, if your property is vacant, then you will be paying mortgage repayments and other fees whilst yielding no income from the property.
- Inflexible: Unlike shares, which you might be able to sell a portion of if you need to access cash, you cannot sell part of a property.
- Loss of value: If the value of the property diminishes, then you could end up owing more than the property is worth.
- High entry and exit costs: Buying and selling property has many expenses such as stamp duty, legal fees and real estate agent’s fees which are costly.
Investing in property comes with many ongoing responsibilities such as property management, insurance, and council fees. Therefore, although the process of entering the property market might be simpler than other investments, owning property comes with its own complexities.
