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9 Reasons to Invest in Real Estate
Real estate is one of the most desirable investment vehicles. It is a source of wealth for many experienced business savvy entrepreneurs and also for the amateurs in the game. Here are 9 reasons why real estate should be part of your portfolio.
It is Relatively Easy to Get Financed
Lenders love property, and with home loans being a major part of any bank's business model, lenders are more willing to lend on property than any other asset classes. This is shown by the fact that they will lend a higher proportion of the value of a property and at lower interest rates than other asset classes. It is therefore a lot easier to borrow to invest in real estate than any other asset classes.
Real estate investing is one of the limited investment classes that gives you access to high leverage. Using property as security, you can borrow more as compared to other investment vehicles such as shares and bonds. A bank will lend you up to 95% of the value of the property, while they will only lend up to 60% of the value of share portfolio. Try walking into your local bank and ask for a line of credit of $1,000,000 secured against $200,000 of your cash to invest in say stocks or commodities. You will probably get a straight 'No' to your face; very disheartening for most. However, if you go to the same bank and ask for the same amount of money to invest in a property, they will happily usher you to their mortgage division and start working on your loan. This greater borrowing power enables you to benefit from the capital growth of a larger asset.
While the past several years have been murky for real estate, a look at real estate in the long haul will make it accurate to assume that your real estate holdings will appreciate to some level. As an investor, you should have the ability to research market market dynamics because there are market cycles where values rise or fall quickly, and make informed decisions based on the anticipated appreciation of the particular market that you intend to invest in.Generally, real estate is an investment class that appreciates and you should thus take the great opportunity to grow your investment portfolio.
It's a Stable Investment with Attractive Returns
The phrase 'safe as houses' is a well-known phrase for a good reason: it's true. When you consider the return and risk associated with buying property and shares, property takes the day. Real estate has been able to consistently increase in value despite a series of disasters, wars, recessions and crises over the years. Property has less volatility in comparison to share capital (though shares have marginally higher capital growth) and this makes it a safer investment.
Hedge against Inflation
You cannot underestimate the importance of having tangible assets as a hedge against inflation. Real estate in particular has hedging capability owing to the positive correlation between GDP growth and demand for real estate. As economies expand, and as the demand for real estate rises, rents are pushed higher and in turn, this translates into higher capital values.
By having assets that grow with this tide, you will not only be able to protect your wealth, but to also grow it. As housing prices rise along with the rising inflation, you will be in a position to get some great returns when you sell your asset in 10 or 20 years time.
Demand higher than supply
This is another very good reason to get into real estate. All around the world, as the population rises, there is an ongoing demand for both rental an commercial property. A look around the major towns and cities will demonstrate this. Along with other factors such as migration, the rising population has contributed to the need for more housing, which makes it ideal for investors to put their money, skill and time into this opportunity.
The fact that demand is currently outstripping supply provides another base that makes it less likely that prices will crash. However, you should do your research properly, as some areas of the market do experience oversupply which will drive the value of property and prices down.
Real estate can be a very passive investment which provides returns much higher than other passive investments, ie stocks, bonds etc. The tax benefits that come with holding real estate, plus the fact that you as an investor can outsource property management, accounting and other jobs, allows you to earn very good returns while playing a hands off role.
Rental real estate can also serve as a retirement plan. For those who are not good savers, it can be kind of a "forced retirement plan". Buying a rental property requires a lot commitment, for which you will be grateful in the long-run as you build cash-flow and wealth. A lot of successful entrepreneurs take the profits from their current businesses and invest it in rental property, consequently growing their networth significantly over the years.
In comparison to other investment classes, real estate is also relatively flexible. You have the option to buy a property to rent it out, you can build your own property or you can also renovate. In fact, cosmetic renovation is a true and tried method of increasing the value of a property; from repainting, installing new systems, putting in new carpets to putting in new kitchens and bathrooms. An outlay of a few thousand euros can add twice as much, if the the property is right. It is likely that you have friends or colleagues who make a good amount of money flipping houses; in fact, this is where the road to making a fortune in real estate began for many investors. This is an advantage that you will not find in many other investment classes.
Price flexibility is also another plus for a real estate investor. If you buy a share, you buy it at the set market price at that time: there is no chance for a negotiation. In the property market, however, it is the reverse: negotiation is the order of the day. You or your property agent can talk down a seller and similarly, you may find a motivated buyer willing to pay over the odds for the right property. There is also a big chance to find undervalued properties, mostly deceased estates or mortgage sales or sales due to divorce. Unlike the share market where all players have the same knowledge, you can use your knowledge of contracts or your negotiation skills to get a good for a property. In the share market, this is considered insider trading and it is illegal.
Create Positive Cashflow
Real estate lets you enjoy attractive income returns on your investment. If you buy a rental property with cash at a value price, this provides immediate, regular income that is far higher than most dividend stock yields. If you buy using a mortgage, the rental income covers your repayment duties as you wait to sell the property in future for capital gain.