We’ve all heard that real estate is a great investment, but the market is always swinging. With the real estate market constantly at extremes, is it still true?
Yes. When it comes to return on investment, real estate is usually still a good bet, as long as you pay attention to the details. To be profitable, a property needs the basics, such as appearance, location and condition. It also needs to be managed and maintained well. Yet a good piece of investment real estate can drive value in three main ways.
Cash flow from rentals
When you invest in real estate, you’re typically going to rent it out. This is the basic way to get a good return on your investment, as long as you keep costs low. An apartment, for example, generally outperforms stock dividends in a typical portfolio.
You have significant control over the income, as well. Choosing renters wisely is crucial, but you can often increase your rental income at more than the rate of inflation without alienating your lessee.
In addition, you can take advantage of the equity you build to give you access to capital. You can leverage your collateral into capital for more real estate investments.
Keeping up with inflation
While inflation can eat into your returns from other investments, real estate is different because its value rises with the tides. Real estate is among the least risky investments in terms of losses to inflation. Even when the market is down, there are interested buyers and renters. They may look for deals in a low market and pay premiums in a high one, but most people ride out the highs and lows from the same property. It’s rare for the value of real estate to actually go down.
On the other hand, it’s quite common for the actual value of real estate to go up. When it does, you have an appreciated asset in addition to a source of income. When you’re ready to sell, you may be able to buy a new investment property at the same time and limit or eliminate immediate capital gains taxes.
There’s a good reason people have long considered real estate to be a sound investment. It outperforms even riskier options. To ensure your investment is as solid as possible, be sure to involve an attorney.