ANALYSING THE CHALLENGES AND PROSPECTS IN REAL ESTATE INVESTING

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Investing in real estate need not be a herculean task and an activity that is dreaded by many. The present article will deal with the nitty-gritty of investing profitably in the sector and to show that investing in real estate has many benefits. It illustrates that land investment is desirable as it is essential to life itself. Food, the primary need of man, is produced on a piece of land. Further, residencies the second basic need of man, while office and industrial land are required for production of products and services. Real estate investment can act as second stream of income for investors and an honest means of pension. This paper is critical to the body of data in land because it identified the varied challenges; explained the challenges and the way to derive maximum benefits from investing in real estate.

The benefits of investing in real estate

1.Steady Income

The majority of individuals invest in land for the steady flow of money they expect to earn as returns and/or capital appreciation. In 2017, over eighty percent of individuals who invested in overseas properties did so for second income stream, while twelve percent did as holiday homes et al. did for capital appreciation. This passive income may be a huge incentive to started and buy your first rental property. Depending on the situation, one will be earning sufficient income to cover the expenses and make extra cash on the side. Industrial areas, urban cities or towns with colleges and universities tend to yield higher income because the demand for accommodation is usually higher in those areas. 

2.Future Financial Security

Real estate is often used as collateral for loans to start a business. The advantage of investing in property is that it provides investors with future financial security. Once there is gentle inflow of money, the rewards of this investment yield financial rewards for an extended time. Owning a rental property can afford investors a type of security due to the property’s appreciation in value over time. This suggests that a property’s value will presumably increase because land and buildings are appreciating assets. However, there's no guarantee that the same will increase indefinitely. 3. Tax Benefits

Investing in land is tax-efficient. Amongst the advantages of investing in land,one is the tax exemptions that investors get from owning a rental property. This is often a prominent reason why many prefer to invest in land. For instance, the income isn't subject to self-employment tax. Additionally, the government offers tax breaks for property depreciation, insurance, maintenance repairs, travel expenses, legal fees, and property taxes.

4. Mortgage Payments Are Covered

The benefits of investing in land includes income generated from rent as well. Simply put, the income one receives monthly is usually quite enough to cover one’s expenses, including mortgage payments. Essentially, the tenant is really the one paying the mortgage. That's why it's important to keep your tenants happy to avoid or mitigate the negative repercussions of vacancy in the least cost.

5. Land Appreciates over time

If one already is into land investment or is just starting out, they must understand that it isn't a brief term investment plan. On the contrary, the advantages of investing in land include the appreciation of capital assets over time. In other words, the property’s value is going to be exponentially greater in, say, 30 years from now.Hence,investors are interested in it at the end of the day.

6. Inflation

One of the advantages of investing in real estate is that it’s a hedge against inflation. With high inflation, one’s income and property value increase significantly. Land investors welcome inflation with open arms because as the cost of living goes up, so does their income. At times, this might cause property bubble. Investors check out the particular cost of replacement of their properties and not the historical cost of purchase when determining capital and rental values.

7.  You are your Own Decision-Maker and a Landlord

With a sound land investment, one  might ditch their salaried and boring job.The simplest part about property investment is becoming one’s own boss and a landlord. A bit like the other businesses, one gets autonomy and control over land investment strategies along with the failures and successes.

CHALLENGES IN INVESTING REAL ESTATE

1. Timing: Timing is usually the most important driver of a successful real estate deal due to its long gestation period. The sentiment is that today’s market in Nigeria is dull, but it's going to only continue for another 12-24 months. The truth is that timing is usually one amongst the most important factors in determining the result of a deal. 

2. Being successful with the primary deal: It's hard to be comfortable and pull the trigger on the primary deal. During a busy market where tons of smart groups with great track records are net sellers while being patient on the acquisition side, it's really challenging to urge comfortable thereupon first deal. 

3. The risks involved: Investing in real estate could also be risky and sophisticated especially for a first-timer. Buying land or property directly from an agency is less risky than that from individuals and companies which begin with different products each day.

4. Cost of rival investments: The chance cost of investing in shares, bond and automobiles is huge. The temptation and/or opportunity costs to take a position in shares of quoted companies, government bonds, and automobiles, which may lead one not to buying land.

5. Getting value for money: It's hard to efficiently sift through all the over-priced deals. There are numerous land options and one may find it difficult to choose between buying residential land or commercial land, and buying residential estate.

6. Unlikely to experience a near-term capital event: Land growth depends on capital appreciation. Over the past 3 years, rapid rent growth was observed in most asset classes and markets that likely wouldn't continue. Land may be a long-term investment and while sponsors receive acquisition fees and some continuous income though their pari passu investment and asset management fee, one does not make real money until there's capital appreciation in that affect investment through which one will sell and pluck profit by buying another property together with equity.

7. To shop for or to develop decision: In certain instances, the alternatives are whether to shop for or to develop. Developing one’s property means the property is going to be tailor-made to the developer’s taste and wishes, but it's going to be costlier than buying a developed property. One must also consider the wriggles and hassles of contractors and his workers. 

8. Cutting more pie than you'll eat: It's always common to see abandoned properties everywhere the country because the owners started bigger than they could cope. As a replacement land investor, one should start with a project that they simply can finish within three months – within the short run or maximum of 1 year - Property features a long gestation period and therefore the risk is that if one does not launch their products into the market on time, other competitors will.Therefore the market might be saturated.

9. Fraud: Tons of people who desire to gain a footing in the land-business are afraid due to fraudulent practices that are prevalent within the industry. The most common fraud today is being perpetrated through sales of off-plan properties. Off-plan properties are properties sold before completion. Off-plan properties are usually lucrative because they're sold below market values. 

CONCLUSION

Real estate investment is one of the simplest and easiest investment products available in any economy. Investing in concrete and steel may be sound investment as statistics show that population will still increase in developing nations and result in new industrial opportunities in developed nations.Insatiable urge of humans for better products and migration of individuals will always drive demand for land in developed countries. Innovation and therefore, the insatiable nature of citizenry for goods and services also give room for opportunities in land investment. The speed of appreciation of land and the services it provides make investment decision in it a wise one. Location is a major driving force behind  decision-making before buying a property.

Real estate investment is desirable by both the rich and the poor because it's a basic need and has comparatively a lower risk on investment. Investment can be done in piece-meal by investing small and increasing shares in the future.  It's a status-symbol to be a property-owner also as income earner. Land also can be procured to function as collateral security for loans from banks so as to get future facilities for doing business. Real estate may be a store useful during a stable economy. Aside from being a status-symbol, it can also act as savings by buying property and improving it before selling at a future date.

"This article is written by Vasundhara Dhar, you can reach out to her at writetovasu17@gmail.com"

"Special thanks to Miss Utkarshini Rai for editing this article."