Why do people invest in real estate?

8 months ago

Why do people invest in real estate?

Although investments should be made with mathematical precision sieved with logic, when it comes to real estate it is often tainted with emotional extravaganza. The emotional attachment towards a home makes the investors make decisions based on many other parameters than only financial metrics. The factors that make them decide on real estate investment are interesting to observe. If you are wondering that this is an article that can be of interest to the behavioral theorist, it may also help you in introspecting yourself and understanding what makes you decide on investing in a property. Read on to find out Why do people invest in real estate! 

Buying a property as a rite 
A property is a rite for many at the beginning stages of their lives as many young couples and young individuals in their late twenties and early thirties go for a home. Many among them are newly married or are about to be married. The primary motive for them to buy a home is their belief that buying a home of their own is a rite to the passage to adulthood. As they have seen their parents and grandparents buy a home when they were married, they equate the buying of a home with embarking on family life.

The real estate developers are aware of this behavioral aspect and the tendency of the buyers as they come up with marketing campaigns to trigger these emotions for the right target group. Although this may be a primary tendency often observed in many young people, the shrewd real estate investor is fully aware that investing in real estate is a financial affair and so refraining from the emotional attachments would help them to make more sound decisions. Mixing the family emotions in the process of buying a property can only complicate matters leading to erroneous investment decisions.

Following the bandwagon   
For many buying a house, property is a status symbol and a sign of prosperity. At the onset of their career, many buy a property if they have a relatively stable job. Here again, there are emotions at play in such investment decisions as they often want to equate their home buying with the proclamation of their success socially. Again the home is a symbol of success which has been realized and acclaimed by the real estate developers as they build many low budgeted homes in the suburban areas with opulent amenities which are primarily targeted to this section of the society. Such homes and the customer experiences are designed to woo the aspirational element of success which validates and tickles their emotional decision to buy a home which may but be necessary but affirms their stride.

Because someone became rich in the past
It is a fact that with rapid urbanization people having large tracts of farmlands become wealthy all of a sudden. This phenomenon has given rise to prospective investors who propose to do the same by riding the wave of urbanization and invest in real estate. They expect the real estate prices to rise as it rose in the past while the truth is, the exponential growth cannot continue for long as it happens at the onset of the spree of development of any city. These investors propelled by the instances of the past expect the market to rise endlessly even when the market trend is bearish. In most cases, their wishful thinking is fueled by their emotions and not an astute financial analysis. However, they get disheartened when they fail to make a lot of money in a short period of time.

Because of Tax advantages 
The tax advantage is another important factor that perpetrates the buyers to make a purchase decision. Most governments all over the world allow tax benefits for buying a property or a home. They allow the home loan borrower to lower their income by the interest and the principal thereby reducing the tax owed. This makes real estate investment a tax planning tool for the middle-class community. People are of the impression that they can reduce their tax bill and inflate their real income and the capital appreciation and rental income can compensate their mortgage installments. In reality, this may not be true and in most cases, the pleasure of possession of a property outmodes all financial calculations.

Because land is scarce 
The idea that the land is scarce as the population of the world is increasing in leaps and bounds have been spread by the developers to instill fear among the home seekers. This has made people believe that a drop in supply and rise in demand would inflate the prices which would go beyond their affordability. On the contrary of this notion, the world population has stabilized and there is enough land with the evolutionary process in place for the habitation of even three times the number of humans on the planet. Therefore the view that there won’t be any land for human habitat is a concocted theory that propels many buyers to go for a property.