7 Weaknesses in The Property Business

August 13, 2018
General Business
Non-Pay Status: TSP Updates Guidance on Loans, Catch-Up Investments

An investor needs to know the seven weaknesses of property investment, in order to anticipate losses and add value to the property.

Here are seven weaknesses in property investment:

  1. Maintenance Expenses (Burden Management)

Property owners or investors cannot let their investments run with continuous results, without ensuring the property is in good condition. He also has to spend additional costs to maintain the condition of the building so that income from rent can increase.

  1. High Capital Investment

Property investment can also said capital intensive. Why is that? Because the greater the capital invested in property, the greater the results obtained by the property investment.

  1. Affordability Investment (Affordability Investment)

In the property business, prices reflect the conditions of supply and demand. Property prices are set base on the characteristics of the local market and trends that affect property demand and supply.

There is one significant difference between valuing property and stocks, namely affordability. Affordability is not an issue in stocks, because stock purchase transactions are made in cash. Conversely, property transactions are usually purchases of leverage that involve financing from banks.

  1. Long Time to Buy (Time Consuming Acquisition)

Buying a property that suits your needs cannot be in a short time, it can be in weeks or months. This is also explain in the nature of the lack of liquidity.

Even a property expert from the United States said, look for 100 properties, choose the best three, to get one desire property (Formula 100: 3: 1).

  1. Limited Knowledge (Lack of Knowledge)

Limited knowledge is due to localized properties. The price of a house in one place is not necessarily the same as in another place. This makes investors must be observant and make a survey of the target locations.

  1. Building Depreciation (Building Depreciation)

Property investment base on land and buildings, although from year to year increases due to rising land prices due to scarcity – but the building above has a theoretical age. This is different from land that has a longevity, aka eternal. Theoretically, buildings can be 20, 30, or 40 years old, depending on the function, quality and standard of building robustness.

  1. Crushed When Natural Disasters Occur (Physical Hazard)

Compare to other investments, property investment has the risk of land and building destruction that can be cause by earthquakes, landslides, tsunamis and others. However, this can actually be overcome by insurance, so that practically the destruction due to a disaster can be eliminate with the additional cost of paying insurance premiums.