Identifying good properties is a key in real estate investment. If invested properly, real estate investment can provide maximum returns with minimum risk. When invested correctly, real estate can make good money. But on flip side, bad real estate can really eat away money. It is essential for investor to be aware of both advantages and disadvantages of real estate investment.

• People generally put their money in real estate to buy homes for their self occupation. In this case the risks are low as selling-pressure for profit booking is minimum.
• But for investors who buy real estate to make profits needs to take care. For such investors it is essential to know the pros and cons of investing in real estate sector.

• Allows Diversification of Asset

  Real estate has almost no direct correlation with other popular asset class called equity. In fact there is a negative correlation with assets stocks, gold etc. This means, the first benefit that real estate provides is diversification of asset. Growth in value of real estate portfolio bears little relationship with other asset classes. It is common, when stock market is doing bad then real estate will perform well. In a situation where an economic boom is at its end, real estate property would still yield good returns.

• Instantaneous Dual Income

  Like stocks, real estate also provides possibility of dual income. Stocks provides short term income in form of dividend. Real estate provides rental income in short term. Predictability of rental income is far more than dividend. In long term both stocks and real estate provides capital appreciation. Stock can provide faster appreciation. Real estate provides slower but steadier capital appreciation in long term.

• Great Inflation Hedge

  A combination of rental income and value appreciation certainly beats inflation. There is not other investment which can beat inflation as consistently as real estate property. Actually it is not fair to consider real estate as only inflation hedge. If invested properly, returns from real estate property outsmarts inflation by miles.

• Saves Income Tax

  If investment is real estate is made availing home loan, then tax benefits can be claimed. For first house which is self occupied, tax deduction U/S 80C (principal component-Max 1.0 lakhs) is applicable. Interest paid against home loan is eligible for tax deduction U/S 24 (Max 1.5 Lakhs). For second house, benefit U/S 80C is not available. But complete interest component is eligible for tax deduction. If interest component is 2.5 lakhs, then complete 2.5 laks is eligible for deduction u/s 24.

On sale of property at higher price capital gain tax is applicable. When property is sold within 3 years of purchase short term capital gain tax will be applicable as per ones income slab. But when property is sold after 3 years of purchase, long term capital gain tax of flat 20% is applicable (after indexation). Indexation gives huge tax benefit to the investor. This is not over, real estate investment gives more tax benefits. Suppose you sold a property at Rs 50 lakhs where your profit was Rs 30 lakhs. If you invests these Rs 30 lakhs in another ‘residential‘ property withing 2 years then the money (profit) will not be taxable.