Real estate is a physical asset that includes land and the structures built on it. It can be residential, commercial or industrial.
It’s an investment that offers high returns with less volatility than stocks or bonds. And it appreciates over time, usually outpacing inflation. It’s a great way to diversify your portfolio.
1. It’s a Long-Term Investment
Real estate investments can produce a steady stream of income through rent. Those rental payments can be used to pay down your mortgage, increasing the equity in the property and your overall return.
In addition, real estate appreciates over time. This is great news for investors looking to generate long-term capital gains.
Many people are scared of investing in real estate because they think it’s too risky or that they need to have a lot of money to invest. However, both of these assumptions are wrong. Investing in buy-and-hold real estate is much less risky than stocks and has provided a safe, stable return for over 30-years.
Moreover, unlike other investment assets, real estate offers substantial leverage through financing. This allows you to acquire a $1 million asset with only $200,000 out of pocket. In addition, it has a low– and in some cases negative– correlation with other major asset classes, providing an excellent source of diversification.
2. It’s Available to Everyone
Many people avoid real estate investing because they think it’s too expensive or that they need to have a lot of money in order to invest. Both of these fears are unfounded.
Unlike stocks, which are extremely volatile and can go up or down quickly, property values generally appreciate over time. In addition, if you buy and hold real estate, you can earn monthly rental income that increases your profits and can help offset your mortgage payments.
Some real estate investors flip single-family homes as a business, buying properties for low prices and then improving them so they can sell them for a profit. Others buy and hold property, such as apartment buildings or commercial buildings, earning a monthly rental income that adds to their investment portfolios. Whatever your investing strategy, it’s possible for anyone to become wealthy through real estate. It just takes time, research and determination. Having a mentor or partner can also accelerate your success.
3. It’s a Leverage Investment
Property investors typically use leverage when purchasing real estate, combining their own capital with a mortgage loan to purchase property. This enlarges their investment and magnifies any changes in property values or rental income. As a result, it’s important to keep the big picture in mind when investing in real estate and work with experienced professionals to make wise decisions.
The best time to invest in real estate depends on location, market conditions, and property-specific factors. For instance, winter is often a good time to buy property because demand is low and sellers are willing to negotiate prices. Another excellent time to buy is spring, when there’s an increase in property inventory and demand is high.
It is also worth noting that property investments come with tax benefits. Owners can deduct mortgage interest, maintenance costs, and advertising expenses. These can add up to significant savings over the long term. This makes real estate an attractive investment for many.
4. It Appreciates Over Time
Unlike stocks, which fluctuate in value, property prices typically increase over time. This is due to a number of factors including population growth, local economic trends, and demand for housing in a given area.
In addition, real estate is a tangible asset that can be resold at any time and provides a steady stream of income. As a result, it is considered less risky than many other investment options.
It’s also important to note that real estate appreciates at a rate that far exceeds inflation. This makes it an ideal investment for those looking to build wealth over the long-term.
To maximize your return, you should consider investing in both core and value add properties. Core real estate is newer properties with little to no repairs needed and offers a balanced mix of risk and reward, while value add properties offer a higher potential return but come with some level of risk. Lastly, it’s important to work with real estate investors who can provide you with historic appreciation data for the neighborhoods you’re considering.