Real estate is a great investment, as evidenced by the trillions of dollars poured into the market each year. The rewards aren’t as easily liquidated as other investment options, but it’s a huge commodity when diversifying your portfolio. It gives you something you can hold onto in a steadier market and helps amateurs get a feel for investments in general. The pro investors of our day often recommend diversifying with real estate for those very reasons.
1. Real estate is great for diversification.
Diversifying your portfolio is a standard of good investing; it limits exposure to a single asset. That way, there’s a better balance of risks and rewards and a higher guarantee that you’ll make money instead of losing it.
“Don’t plunge your life savings into a hot tech stock,” explains a white paper from Realty Mogul. “That links your entire financial fortune to a single stock’s performance. The rewards may be huge. But so is the risk. Kind of like going to Vegas and betting it all on black.”
Investors in Florida are reaping the rewards of purchasing a property now and, if bought in the right market, having the value increase significantly in the years to come.
2. Real estate can involve high returns and low risk.
One of our investors, Michael Rodriguez, a CPA from Miami, says he believes real estate is one of the best corners on the market for high returns on investment.
“I used to have people say, ‘I need a 12 percent yield on my investments to retire,’” he often replies. “I don’t know where you’re going to find it these days, except in real estate.”
Rodriguez puts so much stock in real estate, in part, because of its low-risk/high return infrastructure. It’s a great medium for diversification because, although the rewards aren’t as easily liquidated, it’s still a safer bet for returns than something like a trendy tech market or penny stocks.
It’s important to recognize that real estate is not without its risks, as evidenced by the housing bubble that contributed to the financial crisis of 2008.
It is really hard to spot bubbles with any confidence before they burst. Everyone can recognize a bubble after it bursts, and then many people convince themselves that they saw it on the way up.
However, those who are intelligently invested in the real estate world will follow the market and watch closely for signs of a burst. Although no one can predict the day or even the month that a crash will happen, right now there are some indicators that can make you wary.
Additionally, there are a number of low-risk strategies for investing in real estate. Going into it with a thorough understanding of the market, a plan to generate cash flow, conventional financing, and a reasonable chance of appreciation can significantly diminish the risks facing your real estate investment.
3. Real estate offers easy entry.
Another reason the pros tend to reach for real estate when investing is the ease of entry. Most people can qualify for and purchase a property, and if they’re economically minded, they can easily milk it for all the cash flow it’s worth.
There are dozens of ways to invest in real estate, including flipping houses, REITs, rental properties, commercial rental properties, or simply purchasing a property in a rapidly appreciating market.
Now, it’s true that real estate is an easy niche to enter, but that doesn’t mean it’s always easy to make money with the investment. In fact, investing in something like futures can actually be a simpler process, although it seems more daunting.
Still, buying and selling properties is something that more people do more often. Investing in stocks and bonds takes more knowledge of the stock market and economic matters. While you do need an understanding of economic factors, people often feel more comfortable entering real estate than other investment sectors.
Real estate makes a great diversification factor to your portfolio. If you’ve been through the property-buying process before, you’ve learned from your past mistakes, and you feel like you can understand and navigate this more familiar market. It won’t always be easy to find success, but it is a simple port of entry for your investment diversification.
Amateur and professional investors alike will continually point out the benefits of real estate investing, but you’ll have to experience it for yourself to know if it’s a great diversification factor for your portfolio.
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