Why Real Estate is Superior to other Asset Classes
The world of investing can feel overwhelming. With so many investment vehicles at your disposal, it can be hard to decide where to begin and how to manage your money not only responsibly, but in a way that will give you the highest return on your investment. Investing your money in the stock market might seem like the obvious choice if you are just beginning to look into ways to diversify your financial portfolio. But that is not necessarily the right answer. There are a number of asset classes that you can position yourself in, and while they all provide the possibility of giving you profitable returns, only real estate can offer you the many unique ways to achieve high returns, and most importantly, with less volatility.
Starting with equities (i.e. stocks, shares) there could be many glaring disadvantages. Investing in a company by buying stocks puts you at risk of losing your investment if the company fails or if the economy crashes. Even if the company performs well you can expect to wait a long time before you see your investment flourish into a profitable venture, or to receive dividends that make your investment worthwhile. Also, it takes time to research a company’s track record and future projections, also to stay updated on their current state of affairs to help guide your decision. On top of it, you must pay a capital gain tax if you make money off of selling your stocks (I am guessing you will). All of these can create a lot of unnecessary stress and uncertainty.
We then have bonds as a financial instrument, which is somewhat similar to the equity asset class but has a few key differences. Simply put, a bond is a loan you give to a company or government entity and in return, you will be repaid the amount, or principal, by a set date and receive periodical interest payments, usually semi-annually or annually. There are many issues with bonds. First, they provide low long-term returns. You typically need to invest more money into bonds to see a similar return as you would from other forms of assets. Another downfall to bonds is that they are subject to changing interest rates. Although bonds usually guarantee a fixed interest rate, if interest rates drop you won’t be able to receive as much in return from your interest payments on bonds you might wish to purchase in the future. With all of that said, bonds tend to be less volatile than stocks, as interest rates and inflation fluctuate less than stock prices.
The third asset class is cash. This is the safest asset, with virtually no risk. Put it in a savings account to accumulate interest, or stuff it under your mattress for a rainy day. Either way, the return, if any, is low so there is not much of an attraction to long-term gains. The best use for cash is as a safety net for any of life’s unforeseeable events, and to further invest in other forms of assets if you wish.
Now, there are real estate investments. Real estate offers so many ways to invest your money, and other than cash is the only tangible asset. Like the other asset classes, real estate investments appreciate value over time. As displayed during the COVID-19 pandemic, housing sales have soared and the potential for high returns is at historical highs. Real estate investments give you many different opportunities that other asset classes cannot.
You can use a number of different strategies when it comes to this type of investment. Typically they give you the opportunity to create a steady flow of income through rental payments from tenants, either residential or commercial assets. Purchasing land and building from the ground up, or buying and remodeling an outdated or neglected home or building are just two ways of investing in real estate. Not only is it a consistent source of income with the possibility for appreciation, but owning real estate also gives you unique tax benefits. You can receive tax breaks on things like expenses for upkeep and depreciation. Also, rental income is not subject to self-employment tax. You also can use leverage and build equity by investing in real estate. Other than these benefits, owning real estate puts YOU in charge of your assets and lets you make all of the important decisions on how you manage your investment. You can not do that by owning stocks or bonds in a publicly traded company. You can control what type of tenants you attract, and what improvements to your property you can make to minimize expenses and maximize income. With all of that said, it is still important to do your proper due diligence before investing, to make sure you are purchasing the right property at the right time for the right price.
Real estate has always been where global capital wants to be in, because it is a tangible and stable asset class that if bought correctly, will always go up in value and provide unique advantages that you will not find anywhere else, trust us, we have been doing it successfully for over forty years.