Title: Explain the advantages and disadvantages of real estate investment.
Course: Real Estate (12154) > Section: Explaining Real Estate Investment

Explanation should include

- advantages
  - possibility of appreciation
  - tax benefits in certain situations
  - possibility of an above-average rate of return
  - tax shelter
  - income (cash flow) production
  - greater control than ownership of securities
  - the leverage enabled by the use of borrowed money

- disadvantages
  - high cost to acquire
  - depreciation of property
  - maintenance and upkeep
  - lack of liquidity
  - requirement of long-term commitment and active management
  - risk of lowering values
  - high degree of risk overall.

Explanation should also include a discussion of how capital gains and 1031 tax-deferred exchange affect investment property.

DPOR correlations: 18VAC135-20-400. 2 (Real estate market and analysis); 18VAC135-20-400. 12 (Investment); 18VAC135-20-400. 20 (Appraisal of residential and income-producing property)

Process/Skill Questions:

- What is the role of depreciation of property in real estate?
- How does depreciation affect the profitability of a given real estate investment?
- What are four monetary advantages to real estate investment?
- How is equity build-up calculated?
- What are five disadvantages to real estate investment?
- How might a real estate investor manage his/her risk?
- Why might real estate investment considerations change over time?