Many people, having savings to spare, wonder whether the right choice is to invest in real estate by buying a house other than the one they live in, perhaps with the intention of renting it out and/or reselling it at a higher price.
In Italy, partly for cultural reasons, partly because of the wide availability of real estate, the house has a special value. Suffice it to say that in 2023, 75.2% of the population owned at least one house, one of the highest figures in the world. Moreover, more than one in five Italian households owns a second home (CasaDoxa Report, 2022). In our country, the idea that housing is one of the safe investments par excellence, a safe haven asset where one can invest even the largest part of one's savings, is particularly widespread.
'There is nothing safer than investing in bricks and mortar' is one of the favourite expressions of Italian investors, but is it really so? Buying a second home can be a good way to accumulate wealth and an option for those seeking long-term financial security, but it also entails a number of obligations, disadvantages and risks. In this article we will examine the pros and cons of investing in real estate, and discover alternatives for participating in the growth of the real estate market, such as investing in real estate funds or real estate ETFs.
Home ownership has a number of advantages, such as passive income when renting and possible capital gains over the purchase price. Let us delve into these aspects.
On the other hand, buying a second home as an investment also has some disadvantages, such as the need for considerable savings for the initial purchase or the risks inherent in this type of investment.
For those who do not have the means or the willingness to accept the risks involved in buying a property outright, there are alternatives to benefit from the growth of the property market, with reduced costs and no management commitments. Real estate ETFs (Exchange-Traded Funds) allow transparent and diversified investing, requiring less capital than buying real estate directly. These instruments may include among their activities companies specialised in real estate development and management, or even REITs (Real Estate Investment Trusts), real estate investment trusts operating on different types of properties. In Italy, the equivalent of REITs are SIIQs (Società di Investimento Immobiliare Quotata), which function in a similar way with the objective of making diversified and income-producing real estate investments accessible.
Investing in real estate can be an option for investors seeking passive income and long-term capital gains. However, one has to consider that this investment requires considerable initial capital and involves risks related to the future of the real estate market. Alternatives such as real estate ETFs offer access to the real estate market and the opportunity to take advantage of the sector's growth and profit generation without having to buy an actual property.
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