Property investments can be highly profitable and present a stellar way of growing your finances. The underlying benefit of property investments is that houses rarely decrease in value. If you looked at a chart over the last couple of decades, you’d notice that house prices generally go upwards. There are dips – like during the financial crisis – but in the past they have tended to end up levelling out and going up. This makes property a rare investment as you’ve almost certain to see long-term gains. Compare it to investing in stocks/shares; businesses can easily close down or be embroiled in a major scandal. As a result, your shares can plummet in value and leave you with nothing. This will never be the case with a property investment!
It sounds so appealing, but getting involved in real estate investments is harder than you expect. Again, going back to stocks & shares, you can create trading accounts online and invest in minutes. It’s very straightforward, but there are more drawbacks in the property world. If you’re thinking about making your first investment, it helps to see some of the factors that might hold you back…
Credit score
Your credit score doesn’t come into account with other investments out there. When you look at the intricacies of property investment, you soon see why this is the case. If you wanted to buy a home, you’d need to get a mortgage. It’s not 100% essential, but it is the most accessible way for the general public to invest in housing. A mortgage provides you with a hefty loan that covers the cost of the house. From here, you repay the loan based on the terms of your agreement with the lender. Therefore, you need a good credit score to have your mortgage application accepted.
With other investments, there’s no risk to other people’s money. Think about it, when you invest in stocks, it’s your money that goes into the company. If you fall on difficult times, you sell the shares and get your money back. Nobody else suffers if your financial situation gets worse. With property investments, if you have a bad credit score, you might fail to repay the mortgage. This means that lenders lose out on money thanks to your poor financial situation. So, work on improving your credit score if you need a mortgage to invest in a house.
Your employment status
Similarly, your employment status plays a significant role in determining if you can invest in property or not. Even if you’re unemployed, you’ll be able to invest in loads of other assets. However, unemployed people would struggle to invest in property. Part of this comes from a lack of income, making real estate unattainable. Again, another part refers back to a mortgage; a lack of employment is usually a red flag for lenders, so they won’t let you borrow any money.
Furthermore, self-employed people also struggle to get mortgages and invest in real estate. Why? Well, it’s because you don’t technically have a steady source of income. If you were in full-time employment, a lender could look at your monthly salary and determine if you can afford their terms or not. Self-employed individuals will usually have to seek out a specialist broker to help them find a suitable mortgage. It’s not impossible to invest in property when you’re self-employed, but it can be harder. Just be aware that your employment status can be a barrier that holds you back!
A lack of options
While property investments carry many advantages, one of the disadvantages is that you don’t have a lot of options. Sure, there are different ways of investing in real estate, but you may be limited by the options around you. For instance, if you can’t see many properties for sale, how can you choose an investment? This happens during times of economic uncertainty, where homeowners decide to avoid selling their properties. Therefore, the market dries up, so you have hardly any options to choose from.
It’s never wise to buy a property when times are like this. You can easily invest in something that’s not that great, purely because you’re impatient. If the options aren’t diverse, you will have two options. Firstly, wait until more properties are for sale. Secondly, expand your search to different areas and consider property investment in other countries. This can open up more options and let you find something that’s profitable.
High prices
Now, we’ve kind of skirted around the edges of this point in a couple of the previous points. Houses – and all properties – are considerable investments. If you’re very well off, you can buy one without a mortgage. Most people will need one, even if you earn an impressive annual salary. This makes it a tough investment for lots of people to get in to.
Once more, let’s look at stocks & shares to compare the two. We’ve mentioned this investment many times, largely because it’s the most common way to start investing. You don’t need a lot of money to buy stocks at all. In fact, many trading companies let you buy a percentage of shares, meaning you can invest with pennies. Property investment is a serious financial challenge that requires years of saving before you take the plunge. It’s not something you can try on a whim, or attempt if you’re bored. You have to spend a lot of time, saving money, to either buy the property outright or apply for a mortgage deposit.
To round-off this post, you can say that property investments can be highly beneficial, but difficult for everyone to obtain. You may be held back by any of the forces mentioned above. Thankfully, all of these factors are changeable. This means that they can be influenced and changed in a variety of ways. Take the first point, for example, you can easily improve your credit score to get a mortgage and buy your first property. Also, once you’re on the property ladder, it’s a lot easier to make more investments and grow your portfolio.
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