Advantage And Disadvantage Of Real Estate Investments
Advantages:
When buying single family real estate you can do one unit at a time.
Real estate investment can be good business experience for those who are not necessarily business oriented.
In order to qualify as a real estate investment trust REIT for tax purposes a company must return at least 90 of earnings to its shareholders in the form of dividends. Because of this the average REIT boasts a roughly plus6 annual dividend yield.
REITs aren’t as highly correlated with the major indices as most industries are. As such they may provide your portfolio with some muchneeded diversification and should help to smooth out your overall returns particularly during market downturns.
REITs own hard tangible assets such as land and buildings and often sign their tenants to longterm lease contracts. Because of this REITs tend to be some of the most stable companies on the market.
Disadvantages:
Generally requires more “handson” involvement than other investment options.
Maintenance and repairs take time money or both. And always seem to take more of both than planned.
You have increased exposure both legal and financial.
Your cash is tied up in “bricks and mortar” and is not immediately accessible.
Because they can only reinvest up to 10 of their annual profits back into their core business lines each year most REITs tend to grow at slower clip than the average stock on Wall Street.
Although the business tends to be a fairly stable one REITs are not without risk. For example their dividend payments are not guaranteed and the real estate market is prone to cyclical downturns.
Since they already enjoy a unique taxadvantaged status versus other firms more specifically they are allowed to deduct the dividends they pay out from their taxable income from an investor’s perspective roughly 2/3 of all dividends paid by REITs do not qualify for the new lower 15 tax rate implemented by congress last year. By contrast the vast majority dividends paid by nonREITs are taxed at this new low rate.
About the writer: Martinez Collins has been associated with Real Estate. Having good experience in real estate India her advice is very helpful for investment in real estate India and basically her in depth knowledge about real estate development in Gurgaon visit http://www.hotgurgaon.com/.
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