We are all aware of the global recession of 2008. Its aftermath was devastating. Post this occurrence, people have become skeptical about real estate investments. Since this recession was linked to the housing bubble that occurred in USA, real estate has been partially blamed. However, experts like Jeff Adams believe the benefits of real estate investment cannot be undermined. These investments are not speculation. Simply put, it is an act of buying a future flow of income.
Let’s take a look at some reasons for investing in real estate.
High asset value: Real estate investment involves money and tangible assets. Hence, the returns do not depend on the competence or performance of managers and debtors. On the contrary, stocks involve a high amount of speculation and uncertainty.
Stable returns: This is one of the key benefits of real estate investment. In fact, a substantial proportion of the total return on investment comes from the rental income accrued over a long period of time. Real estate is a more profitable and reliable source of income flow as against the other arenas.
Hedging of inflation: As an economy grows, the real estate value climbs. This leads to a rise in rental values which then turns into higher capital values. Thus, real estate investment divides the effect of inflation between the tenants and capital appreciation of the property.
Portfolio Diversification: When gurus like Jeff Adams recommend putting all eggs in different baskets, it certainly holds a significant amount of truth. Addition of real estate investment can reduce the volatility of your portfolio and provide a higher benefit per unit of risk.
The pointers above are convincing enough to consider investing in real estate. However, it is only when an investment is promising and lucrative does it become worthwhile.
Primarily, investors can make money from real estate when there is:
- Appreciation of the property value
- Rental income
- Presence of profits gained from business conducted on the basis of the property
Appreciation: This is the most natural way of increasing the value of a property. In case of raw land, appreciation can come from various discoveries such as oil deposits, minerals or gravel. However, the landowner must hold the necessary rights.
In the case of residential properties, appreciation depends on location. Facilities available, proximity to stations, railways, hospitals, schools, shopping centers or neighborhood amenities can spike the price of a property. The same reasons i.e. convenience and location hold true for a commercial property.
Rent: If you own a property and put it up for rent, there can be a steady flow of monthly / annual income. Once again, the rent depends on factors like location explained above.
Business operations: If you own a restaurant, you can sell merchandise to kids, if you own a residential building, you can earn from parking slots and playgrounds. This is one of the simplest ways of making money through business activities conducted within your property.
Thus, real estate is a wise investment avenue when the options are chosen wisely and with the right guidance.
