Investing in real estate is a great way to diversify your portfolio and make some money. If you are a novice or experienced investor, there are many reasons why it is advantageous to invest in real property, but here are the top eight reasons why you should invest in real estate
Investing in different types of assets will reduce risks associated with one type of asset. For example, if an individual invests all their money into stocks, they’re taking on more risk than if they invested some money into bonds as well. But investing in only one type of property isn’t wise either because then an individual would be at the mercy of that particular market’s ups and downs. The best balance between these two extremes is investing in real estate.
Real estate investment property has historically always appreciated in value, even during the Great Recession. Home values are expected to rise above the long-term inflation rate over the next five years, so it is a good time to invest in property. People tend to view their homes as places to live rather than as an investment. As a result, they fail to take advantage of the appreciation potential and instead view it as a necessary expense or liability.
3. Cash Flow
Unlike other investments such as stocks and bonds, real estate provides cash flow — monthly rents that can be used toward your living expenses. Real estate does not only produce income from rent but it can be sold or refinanced to release cash that can then be used for personal expenses. Risk is the downside, but the potential yield is much higher than other investments.
Real estate is one of the few assets that have intrinsic value. It cannot disappear like paper money, and it has real, tangible value in the form of a building that will not be rendered worthless because of a sudden drop in demand. In other words, real estate will continue to have value even if the market crashes again and supply outstrips demand for certain types of property. So contact a reliable realtor like Donovan Brothers Realty Inc. and discuss your buying options.
5. Capital Gains
Capital gains are the profits one makes when one sells an asset for more than it was purchased. Usually, the capital gain is associated with stocks and bonds, but real estate has proved to be a great investment vehicle to generate capital gains. When you purchase property in an area that increases in value by 10 percent or more over five years, it’s considered a good investment because the returns equal the expected rate of return. Considering how expensive homes can get in some markets, your own home may be worth quite a bit if you live in one of these areas.
Leveraging is using borrowed money to fund part of an investment, thereby increasing your potential return on equity (ROE) while decreasing your risk. Using borrowed money is great for real estate because the rate of return on your equity can be amplified. For example, if you buy a $500,000 property with $100,000 down and the value of the house goes up 10 percent, then you’ve made $50,000 in equity (10% x $500k = $50k). At that point, you could refinance to pay off your credit line or sell the home and pocket all that extra cash
Liquidity is a good thing in real estate because you can cash out your investment quickly. The market for real property doesn’t crash as often as that of paper assets, so it’s relatively easy to sell a property whenever you want. You don’t have to wait for a buyer or convince someone to agree with your terms — the money from the sale will be transferred directly into your bank account within days, if not hours.
8. Low Risk
Real estate is pretty low risk compared to other types of investments, so there’s less opportunity for loss. Sure housing prices can change and fluctuate, but they tend to rebound sooner rather than later — usually after an inflation rate of about 3 percent per year — which means returns are still higher than inflation.
In addition, the long-term return on real estate is high as well — around 5 percent each year or even more — which beats returns from bonds and most other investments. For a little diversity in your financial portfolio, there are few better ways to invest money than by purchasing a home or investing in a commercial property.
That’s why investing in real estate is something that every person should think about at some point. It’s not reserved exclusively for those who have millions of dollars to spare — you can get started and make an investment purchase for as little as $5,000!