Why Real Estate Is the Best Way to Diversify Your Investment Portfolio

Diversifying one’s investment portfolio is a must for any passionate investor who wants to protect themselves from the risk of market crashes and earn bigger profits from the money they invested. One of the most appealing investments today comes in the form of real estate, in which they receive extra income and tax breaks. A great example is the 1031 land exchange that allows investors to turn their proceeds into secure, monthly cash flow.

Given the amazing opportunities generated by property investments, we’ll look at the reasons why it’s worth investing in real estate, including other potential benefits.

It’s a tangible asset

When investing in intangible assets, such as bonds or stocks, your investment is only written on a piece of paper. It doesn’t have a physical presence and offers no guarantee because it is highly dependent on the rise and fall of the stock value. Also, it can be destroyed through human error and a potential side effect of the failure of a business. In other words, when the market crashes, your intangible assets lose all of their worth.

Real estate is a great example of a tangible asset — its value might fluctuate over the years. Although there’s no assurance it won’t fall, tangible assets are still worth something. You can choose to sell it if you want to surrender the investment. As a tangible asset, it will take a while before generating cash since you have to go through many legal processes. If everything goes to your plan, you can walk away with a bigger capital gain.

It appreciates naturally

Unlike bonds or stocks, there’s a way to force appreciation on real estate. First, it’s important to remember that real estate typically appreciates naturally. Although a property’s physical structure eventually depreciates over time, the land it sits on often appreciates. Real estate commonly appreciates three to five percent every year without doing anything but maintaining the property or upgrading its features. One way to improve the appreciation rate is by making repairs or renovations.

Still, not all upgrades boost the home value, especially if it’s botched work or done by a non-professional. If you want to increase the value of your home through upgrades, you can consider working with a real estate agent or a licensed appraiser to determine the most valuable renovations to make. Although it won’t exactly return every dollar you spent on the renovations in one go, the money you invested will eventually return and provide a profit in the long run.

Renovation doesn’t have to be anything grand or expensive. Of course, basement finishes and additional rooms add extra value than basic cosmetic renovations. Still, you can stick with minor bathroom and kitchen renovations since they significantly affect the home’s value.

It provides passive income

Buying and holding real estate allows you to take full control of your investments by allowing them to generate passive income. Remember, not all investments provide cash flow. Although it involves dividends, you only collect them quarterly or even annually.

Real estate offers an attractive passive income that doesn’t require you to work for it every day, depending on how you manage a property. In other words, you can earn regular cash flow by simply renting it out, whether on a small studio apartment or single-family property. The checks you receive from the monthly rent are examples of passive income.

The great thing about rental properties is you don’t rely only on natural appreciation, but you’re also increasing your real estate profit through the monthly rental income. This works for out-of-state investors who have long-distance real estate. They don’t have to handle the day-to-day operations since they can hire a property manager to collect the rental income and manage all aspects related to the tenant account.

It offers financial security

There’s always a risk of loss when investing in the market. As the recent events revealed during the COVID-19 pandemic, everything can change instantly. When investing in real estate in the long term, you have a guaranteed appreciating asset. Although it might experience shifts and lose some value, the housing market always finds its way to bounce back as long as you hold on to it long enough.

Anyone who wants to experience greater financial security and bigger investment opportunities should consider buying their first property. Investing in real estate offers bigger returns as long as you meet the conditions and are up-to-date on the latest housing trends. The benefits above prove that you should grab this opportunity, especially if you want to keep your finances safe and sound during these trying times.

Meta title: What Makes Real Estate the Best Way to Increase Your Investments
meta desc: If you’re looking to diversify your investment portfolio, real estate is the way to go. Discover the reasons why investing in property investments is more likely to yield higher gains.

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