Services Rik 24 december 2022

The pros and cons of investing in real estate

Investing in real estate sounds enticing! Who wouldn't want to become sleepy rich? Or is it all not as rosy as it sounds? We would like to list the pros and cons of real estate investing for you, so you can decide for yourself whether it suits you.

The advantages

If real estate investing offered no advantages, investors would never embark on it. Like any other investment, investing in real estate can provide attractive returns. Here are some of the benefits of investing in real estate:

  • Investing in real estate can provide more diversification in your investment portfolio, mitigating any disappointing results from other investments.

  • When investing in real estate, you are not affected by inflation or low savings rates.

  • You receive rental income every month, which can%26nbsp; be a nice addition to your income or pension.

  • You do not have to pay tax on rental income.

  • When investing indirectly in a real estate project, you have nothing to worry about because a fund, company or partnership manages the project.

The disadvantages

Investing in real estate also has drawbacks. All too often, people look at it too easily, expect golden mountains and are left with mediocre returns. What are the disadvantages of investing in real estate?

  • High transfer tax: since 2021, the transfer tax for an investment property is no longer 2%, but 8%. So that's substantially more!

  • Lenders charge a surcharge on top of the mortgage rate.

  • You often get a maximum of 80% of the assessed value of an investment property as a mortgage. You have to pay the other 20% from your own money.

  • You are not entitled to mortgage interest relief with an investment property.

  • Until 2027, municipalities can buy-back protection in place. In sought-after areas, houses cannot then simply be bought up for renting. This will leave more affordable homes for sale for house hunters.

  • You may have to deal with vacancy. You will then receive no rental income, while you do have the standard costs for insurance, for example.

  • A property you rent out also needs maintenance. This can take up a lot of time and money, especially if the tenants are not very diligent.

  • You don't know beforehand exactly what kind of tenant you are taking in. Once in, you don't get rid of a tenant so easily because they enjoy rent protection.

  • Time goes into drafting a rental agreement, keeping records and staying abreast of laws and regulations.

  • With indirect investing, you often have little insight into costs, debts or portfolio.

  • You cannot simply exit a real estate fund. There are strict conditions for that.

  • When investing directly, i.e. buying a property yourself, using an intermediary to rent out the property involves management costs.

  • Investing in real estate is uncertain. You can never say in advance exactly how high your return will be.

  • So if you have to take out a mortgage, you are investing with borrowed money. This carries risks if the results are disappointing.

Be well informed about the Pitfalls of investing in real estate and ask for tips to increase your potential return. Only when you are fully aware of all the drawbacks and risks is it responsible to take the step to investing in real estate. Good luck!

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