Liquidity is a Major Disadvantage for Real Estate Investors |
Real estate is a sort of traditional outlet for investment. The current real estate industry in china is just at the age of a boy. The exploitation of real estate is an industry of high profit which leads to the interests of many investors. The characters of real estate greatly affect the decisions made by investors.
Ⅰ．Introduction of the investment of real estate
⒈ The concept of real estate and its character
Real estate can be defined in generalized way or narrow way. Generally, real estate means soil and the buildings on it with its infrastructures and natural resources such as water. Narrowly, real estate means the buildings on soil and the rights involved by them. Here, we will take about real estate narrowly that are permitted by national laws to be invested by individuals.
The character of real estate:
a) Expensive
b) Hard segment
c) Can not be moved
d) Can not be added
e) Can not be replaced
f) Maintenance
g) Can be invested and consumed at the same time
⒉ The character of investment of real estate
a) The dealing of investment of real estate is combined closely with real estate
b) The location and around area and individual difference of real estate determine the difference of profit and price made by grade.
c) The maintenance of real estate determines the credibility of the investment of real estate.
d) Large scale of investment and long cycle of exploitation. The slow turnover of the investment of real estate should be considered.
e) The investment of real estate keeps alive and brings increment with the development of society and increase of population and increasing demand of soil which lead a trend of increasing price of real estate.
⒊ The advantage and disadvantage of investment of real estate
² Advantages: can be used personally and be invested；can get profit after a long time; can offset the loss of devaluation; as security for the loan.
² Disadvantages: ill liquidity; takes a lot of time and energy to manage after being rated; needs a lot of fund; at big risk.
Ⅱ．Lacking of liquidity is the main problem for investors of real estate.
⒈ The character of real estate determines its ill liquidity especially for the liquidity of found.
⒉ The reason
Firstly, it is caused by the high cost of dealing of investment. A large sum of found is needed in the investment of real estate and can not become return in a short term.
Secondly, the process of dealing is quite complicated. The cycle of construction of real estate takes a long time sometimes lasting for about four or five years, which leads to a complex procedure during the process of dealing.
Thirdly, the market of real estate is graded. The subsidiary market causes the lake of information for investors. the value in market is different with the real value of real estate. Real estate can not be moved like the other commodities. the difference of market causes a low flow of real estate.
Fourthly, the investment of real estate can not be segmented to gain profit in a long run. A little factor affects the return of investment.
Finally, houses owned by investors are rent for money. Different price of houses owned by different investors is always caused by the differences of location, communication, environment, attached facilities and styles of house. The over exploitation of real estate may increase the rate of leaving unused empty houses, which slow the liquidity of the found of the investors.
Ⅲ．A supposed example
Suppose you have a found of 200,000 dollars to invest for a house. If you pay 40,000 for the first time, and the rest 16,000 dollars will be paid by loan from bank. Would you keep on your investment?
1. You should make sense what you will gain as a return?
In the coming 6 years, if the house you owned revalued to 2,802,000 dollars at a rate of 5.9% annually, that means you have gained a profit of 820,000 dollars. It will be a good deal, but it is not the case.
Actually, there is a big problem of calculating without the thinking of a large sum of cost.
a) Suppose the deadline for the loan of 16,000 is 30 years at the rate of 16%, you have paid 13,763 dollars with the profit of 95,763 dollars.
b) At the same time, you also paid 55,305 as an interest of loan. If the rate for tax is 25% and the rate of loan equals the outlay of tax, the cost of your interest after tax would be 41,419 dollars. Subtract this interest from your profit, and then your profit of investment will decrease to 54,284 dollars.
c) The cost for gain this profit is much high. The 5% for medium decrease your profit from 14,100 to 40,184 dollars.
d) Except for [1] [2] [3] 下一页
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