Why should I invest in Real Estate?
We often ask ourselves questions like how can I save money? How can my savings grow and where should I keep my savings. We all need money for ourselves and for our children's education and of course when we retire. There are numerous ways to do that but we need to put our money where it is safe and secure. Savings should grow over the year and the invested money should produce steady income as well. In the following paragraphs, I will try to explain the strategy used by many people from a long period of time, called REAL ESTATE INVESTMENT.
People for a long time have used real estate as a way to invest in the future. Alongside other investments, investors have looked to properties like houses, apartment units, commercial properties and other types of real estate as a way of expanding their portfolios, earning income and planning ahead for retirement or sending a child to university/college. A recent study even showed that nearly half of pre-retired homeowners in the province are relying on the value of their home increasing to fund their retirement.
Some people consider the home that they live in to be an investment, which may gain value over time if housing prices increase. Other people may invest in real estate by purchasing property to lease to another person or business with a plan to earn income through the rental payments that the person or business provides. This is known as investing in ‘real property’ and is one of the most straightforward ways to generate an income through real estate.
Investing in a Real Property is different as compared to the other traditional investments, usually bought at a higher cost and needs to be managed. The owner needs to arrange the mortgage, find the tenants, looking after the maintenance of the property and paying the mortgage and taxes associated with the property.
Key Reasons to Consider When Investing in Real Estate
Real estate has a high tangible asset value. Unlike stocks, and to some extent, bonds, an investment in real estate is backed by a high level of brick and mortar. This helps reduce the principal-agent conflict or the extent to which the interest of the investor is dependent on the integrity and competence of managers and debtors.
Real estate can offer a stable and steady income return. A key feature of real estate investment is the significant proportion of total return accruing from rental income over the long term.
Portfolio diversification potential is another key benefit of real estate. Real estate has a low and in some cases negative, correlation with other major asset classes. This means the addition of real estate to a portfolio of diversified assets can lower portfolio volatility and provide a higher return per unit of risk.
Real estate is capable of offering inflation hedging. As economies expand the demand for real estate drives the rent higher and this, in turn, translates into higher capital values. This allows the investor to maintain the purchasing power bypassing some of the inflationary pressure on to tenants and by incorporating some of the inflationary pressure in the form of capital appreciation
In a nut-shell, real estate is a distinct asset class that is simple to understand and can enhance the risk and return profile of an investor's portfolio. The built-up equity in Real Estate Investment can be leveraged and used for investing more and can be used for your child’s education or your own retirement. It can also enhance a portfolio by lowering volatility through diversification.
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