In the past decade, the growing prospect of real estate assets has shifted the investment world’s priorities. Undoubtedly, many investors fear the fluctuations that political and economic uncertainty cause in capital markets. The perk of real estate investment is that it allows for a multi-asset portfolio with low risk.
Of course, investing depends on a wide range of factors, mainly on your risk profile. In this regard, real estate investing may not be the best decision for beginners. But many advanced-level investors find real estate investing to be satisfying and lucrative. Here are the top 5 reasons why you should include real estate investments in your portfolio.
1. Lower Risk
First and foremost, investing always has to do with taking a risk. That’s why putting money in a company with high growth potential may be risky. Of course, it may bring some significant returns, but it’s all heavily dependant on its management. If you are a beginner, you can quickly lose all your money. Bonds are pretty similar, as they pose a lower risk but are still dependant on the competence of the company management. The benefits are steady interest payments, but it can all go wrong in the nick of time.
On the other hand, real estate represents a physical asset – something precious in recent times. Of course, older buildings may suffer from depreciation, but that’s not applicable for all real estate. As you may know, the land holds value, and prices may even increase over time because of the limited supply. While REITs will relieve some management duties, real estate investment poses a lower risk than stocks and bonds.
2. Higher Income
Another benefit of trusting REITs is that you’re more likely to get high cash flow yields. Compared to stocks and bonds, the income is several percent higher. For example, you may see 3-4% annual dividends from bonds or stocks. If you make a real estate investment, your annual returns will likely range from 8% to 12% or even more.
In other words, reaching $2000 per month in cash flow would require you to invest $600000 in bonds. Similarly, you’d need to put up half the amount in commercial real estate to hit the goal. Depending on the dividend percentage, the annual income may even help return the investment faster.
3. You Can Have The Cake And Eat It, Too
The thing that distinguishes real estate investing from stocks and bonds is that you’re building equity in the property. In other words, you’re paying your loans with the residents’ money. Instead of using the investors’ cash to pay for the mortgage, the residents pay down the debt with the rent.
As you pay down the mortgage, the value of your property may go up. Over time, you can refinance your properties by going back to the current lender or find a new one. Eventually, you’ll get a large chunk of your initial investment back, and you can reinvest it somewhere else.
4. You Can Make a Difference
One of the most significant benefits of real estate investment is making a difference with it. When you put money in a property, you increase its value, thus making it a more desirable place to live. In a sense, you’re helping the community, and that’s not an exaggeration. By increasing the value of your assets, you’re offering an enhanced housing with better care.
5. Fewer Fluctuations
As mentioned previously, stocks and bonds have one common weakness – high market fluctuations. Typically, both investment options correlate to each other. In other words, when bond prices fall, stocks eventually do the same, too. Luckily, that’s not the case with real estate investments. They are way more resilient to market fluctuations, which makes them a viable investment option.
The need for land makes it a solid investment that doesn’t change when the economy takes a downturn. In such cases, people tend to rent instead of buying a new property. In turn, this factor may be the reason for increasing the demand and cash flow. When the economy is in good condition, property prices may increase due to the higher appreciation of real estate. Either way, the cash flows and the increase in value in real estate investing don’t align with the economy. This feature is quite beneficial because it provides balance to your portfolio.
To conclude, real estate investing offers many benefits to your portfolio. Of course, making your way into real estate investment may not be easy at first. Fortunately, there are lots of experts that may come to help. The best way to make sure you’re making a suitable investment is to consult with Real Vantage.
Companies like these offers assistance in the co-investment of properties from the US, Australia, and the UK. Moreover, you’ll get the cream of the crop when it comes to land and property deals.