Apr

22

Advantage And Disadvantage Of Real Estate Investments

April 22, 2008 |

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 plus-6% 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 much-needed 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 long-term lease contracts. Because of this, REITs tend to be some of the most stable companies on the market.

Disadvantages:

– Generally requires more “hands-on” 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 tax-advantaged 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 non-REITs are taxed at this new low rate.

Author of this article is associated with hotgurgaon.com from a long time having experience about how to invest in Real estate Gurgaon and other realty market in India to read article of the author about real estate visit http://www.hotgurgaon.com

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