Investing in properties is generally a good decision, as well as one of the most popular choices for investors looking to diversify their portfolios. Now, the reason why a regular person would invest in property is quite straightforward.
While some of these reasons transfer to real estate investors, as well, there are a couple of new angles that you should definitely watch out for.
With that in mind and without further ado, here are some of the top reasons why investing in properties might be beneficial in your particular case.
1. Great for Cash Flow
Rental properties generate a great cash flow. In other words, if you invest in property, you can diversify your portfolio and collect rent in a similar way in which you would collect dividends if you were to invest in stocks. Rental property also has a pretty decent return.
If we’re talking about residential property, 1%-2% of the total value each month is a great return. When it comes to commercial property, somewhere around 4%-5% per year is a good return. Keep in mind that finding the right place determines whether it’s a good investment or not.
2. Great Counsel is Easy to Find
Another thing you need to keep in mind is the importance of finding professional assistance. You see, finding the right realtor is not a simple task but they’re just the tip of the iceberg. Since there’s so much legal work to be done here, you also need to find the right property solicitors.
Before buying a property, you should have contractors, inspectors, electricians, plumbers, etc., check it out. So, if you’re serious about property investment, you might want to start building your own network of contacts.
3. Greater Control
In a scenario where you invested in a stock of a certain company, the return in dividends that you collected would be completely out of your reach. The same thing goes with investing in precious metals – you can’t really affect the global price of a commodity, nor can you choose a “better bullion”.
This is not the case with property. Namely, you get to choose the place that you invest in and if you pick the right location, invest in the rejuvenation of the place, etc., you can easily increase its value. You can even adjust the price (within reason). In other words, you get more control over your investment.
There are not many investments that provide you with so many options. You see, if you buy a piece of property, you can sell it, fix and flip it, move in, turn it into a venue, or do anything else you want with it.
You might even decide to become an entrepreneur yourself, so why not start in a business space that you own? The key thing is that you always have options and it’s never too late to change your mind.
Naturally, if you’re renting it out, you’ll have a contract and you’ll have to wait for the lease to expire to make any changes, however, it still might not be that long. Having your options open is always good in the changing market.
5. Building Equity
Another thing you need to understand is that building equity isn’t really much different than building wealth. As soon as you make the first payment of your property’s mortgage, you’re building up your net worth through equity.
Later on, you can use that equity to buy even more properties or increase your cash flow even further. Now, when you take into consideration that you can also get property through the use of real estate leverage, things will start going even further in your favor.
6. Diversifying Portfolio
Investing in real estate is one of the best ways to build your portfolio as an investor. Real estate has a low correlation with the majority of other asset types. In fact, it even has a negative correlation with a lot of them, which means one or two things.
When the value of other assets starts going down, the value of the real estate that you owe either remains unchanged or goes up. In other words, by investing in real estate, you’re practically preparing a contingency plan (preparing yourself for the worst-case scenario).
7. Inflation Hedge
One of the main reasons why you should invest in property is to protect your investments from inflation. The inflation hedging capability depends on the correlation between the GDP growth of the region and the demand for real estate.
This means that as the standard of living goes up, the rent goes up, as well. As a result, the capital value grows quite drastically. According to some estimates, owners of residential and commercial properties are well-off during times of rapid inflation.
Now, seeing as how inflation is a trend in modern economics that you never really want to bet against, investing in rental property seems to be an even better idea.
8. Investment Trusts
The last thing you need to keep in mind is the fact that you don’t actually need to own and manage property in order to invest in it. Instead, you can find a real estate investment trust (REIT) and make your money this way. By finding the right REIT on the stock exchange, you can put your money into real estate without actually holding direct ownership of the property.
Why REITs and not regular stocks? Well, mostly because they usually offer higher dividends. Second, all the rules about inflation and correlation to the rest of the investment types (that we’ve discussed earlier) still apply.
So, is investing in real estate always a good idea? Of course not, there’s the lack of liquidity to take into consideration, as well. You can sell a stock in a second. You can also sell a couple of stocks when you need some cash while with a property, you usually have to sell it all if you want some cash.
Nonetheless, when all drawbacks and advantages are taken into consideration, making investments in property is definitely something that every serious investor out there should consider. It’s great for diversifying your portfolio, cash flow, as well as keeping your options open.