Analysts the world over unanimously agree that the housing crash precipitated the current global economic downturn. Over-zealous bankers relaxed their lending standards and many first-time homeowners purchased houses they could not truly afford. Foreclosures started occurring in record numbers as property values plummeted, causing people to lose the equity in their homes and become upside down in their mortgages. The current economy is an unfortunate consequence for many people.

When the real estate market starts to decline, as is its current state, there are some individuals who want to take advantage of low property prices and low mortgage rates by purchasing rental real estate. However, investors should be advised that as with any investment there are both pros and cons, and real estate is no exception.

Purchasing real estate for investment purposes can really diversify an investor\’s portfolio, because it is a tangible asset. What that means is that you can physically touch and see your investment as opposed to investing in securities like stocks and bonds which are held at the brokerage firm unless you request a stock certificate. Another advantage to buying real estate as an investment is that real estate has true / inherent value. The inherent or true value comes from the fact that people will always need a place to live. Shelter is a basic, fundamental need of humans, and as such real estate represents an “evergreen” investment. Thus, you can be reasonably assured that rental properties will always generate income each month. This is not to say that money cannot be lost or your investment will not depreciate in value; rather, that some level of value will always exist. Conversely, stocks and similar equities are only as valuable as the underlying company. If the company files Chapter 11 Bankruptcy or becomes insolvent, your shares in the company will become worthless.

As with many things, for every pro there is usually a con and real estate is no exception. Investing in the real estate market allows for little to no liquidity. It is not a quick buy and sell environment like the stock market. Even if you purchased a property and everything lined up with the seller perfectly, you still usually have to wait at least 30 days for the deal to close. Another con is that there are significant liabilities with investing in real estate. If your property is a rental, you are responsible for any repairs, following local landlord-tenant laws, and handling litigation claims that may arise from usage of the property.

To that end, investing in real estate is a great opportunity right now because of historically low mortgage rates, low property prices and the volatility of the stock market. As mentioned, many people have lost homes due to foreclosure and as a result the banks are willing to negotiate prices in order to recoup money that they lost due to poor lending decisions. This allows prospective real estate investors an opportunity to take advantage of these low prices. Conversely, those who have lost homes will need someplace to stay. Rental properties are a good way to generate income while providing people a basic, fundamental need – shelter.

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Category: Real Estate
Keywords: rental property, real estate investing, invest in real estate, real estate