Skylar is looking to purchase real estate as an investment using all of her available funds, but she has several concerns. Which of the following concerns are valid from an investment standpoint?

Question

She might be disappointed because real estate usually offers modest returns.
She might lose her investment funds because real estate is notoriously risky.
She might regret the purchase because she would not want to live on the property herself.
She might miss a better investment opportunity because real estate is not particularly liquid.

Answer 1

All of the concerns Skylar has mentioned are valid from an investment standpoint. Here’s a breakdown of each:

1. Disappointment due to modest returns: Real estate can offer modest returns compared to more volatile investment options like stocks. This is a valid concern, particularly if Skylar was expecting high returns.

2. Risk of losing investment funds: Real estate comes with its own set of risks, including market fluctuations, property devaluation, and unexpected expenses (maintenance, taxes, etc.). The possibility of losing investment funds is a legitimate concern.

3. Regret over not wanting to live on the property: When purchasing real estate, especially rental properties, emotional factors can come into play. If she is not interested in living in or enjoying the property, potential regret could arise, especially if the investment does not perform as expected.

4. Missed opportunities due to illiquidity: Real estate is generally not as liquid as other investments (like stocks or bonds), meaning it can take a significant amount of time to sell a property and convert it back into cash. This concern about missing out on potentially better investment opportunities due to lack of liquidity is also valid.

In summary, all of Skylar's concerns are valid considerations for anyone looking to invest in real estate.