Real estate investments can generate free cash flow and also act as a shoreline defense. Today's often changing market experiences rising inflation and threats of violent market downswings. Real estate investments can strengthen your portfolio and steadily build more wealth.
In other words, real estate investing and property holding influence and bolster a portfolio's performance in alternative ways. Real estate serves as a hedge against inflation, for example, and it provides stable returns even in a faltering market. The following main points summarize why individuals with larger portfolios should invest in real estate.
Real Estate holdings are fairly stable investments. Your real estate is not directly tied to any other investment vehicle, such as the stock market or mutual funds. When the market corrects itself and stocks lose value, real estate values do not automatically fall.
Selling or renting the properties also yields profits. Typically, the rental market property values fluctuate in a see-saw fashion. As property values rise, rental values fall, and vice versa, offering protection and stability.
In major market crashes, such as in 2008 and 2009, real estate value plummeted. Keep in mind this was a singular case caused by a major failure in the mortgage derivatives market.
Inflation erodes the value of your money, and it also reduces gains from monetary investments — as in stocks, bonds and ETFs. Real estate is often protected against inflation because rental rates increase incrementally. As a landlord, you can adjust rental rates each year automatically, either with certain clauses in your lease or whenever you find a new tenant.
With investments such as stocks, you're chained to a yearly yield as a prisoner. This is your total gain and the only amount of growth you receive. One bad investment could cause you to lose large sums of money in a moment, anywhere from 20 to 50 percent or more. Risk is large and immediate.
Meanwhile, your money is essentially protected against wild market mood swings. Large percentage drops on homes just do not happen in most normal markets. If you inspect your properties carefully and negotiate fair prices, real estate offers a fairly high return on your investment with limited risk.
Real estate is also the only investment you can physically improve on your own. As an owner, you are free to renovate and update properties to add value. Landlords can fix broken plumbing, paint walls and install new floors to enhance the appeal of the property and increase its rental or resale value.
Be cautious of the bad tenant — they can cost landlords money by not paying rent, destroying property and even filing erroneous lawsuits. By diligently screening each renter and performing a full credit check, you can avoid most bad tenants. As you collect rent monthly, you won't have to stress over any lawsuit loans to help defend yourself in court.
Real estate offers plenty of potential for wealth building with limited downside risk. For individuals with visions to see opportunity where others do not, the upside is unlimited.