If you don’t, you will miss out on incredible growth, and your money will likely even devalue over time due to the inflation. What is more difficult is deciding where to allocate your capital. There are a significant amount of options out there, so it is normal to be overwhelmed by making this decision.
Why not look how high-net-worth investors diversify and model them? If you research affluent investors, what you’ll find is that they diversify around 30% in real estate.
High Returns, Low Volatility
In a favorable economy, stocks and real estate both rise in value. In these conditions, they are both desirable investments. When the economy tumbles, the stock market falls hard. On the other hand, real estate usually stays roughly the same. When comparing these two assets, you need to think about the good and bad times. When you do, you will undoubtedly choose real estate.
It Is a Tangible Asset
When you purchase stock in a company, you are not buying anything. What you are paying for is something that is immaterial. If that company disappears, so does your asset. In real estate, this is not the case. If you purchase property or are part of a fund that owns the property, you have a tangible asset in your portfolio that will not go away.
The Value Increases Over Time
Though real estate goes through rising and falling markets, there is a definite trend towards increasing value over time. If you were to invest in company stock, this is not the case. That companies’ value could fall significantly and never recover. What this means is that while there is a wrong time to invest in stocks, there is never a wrong time to invest in real estate. No matter what prices are when you buy, they will rise with time.
Because the government wants to incentivize real estate ownership, they offer a variety of favorable policies for it. The primary mechanism they use for this is tax deductions. When you own property, you can deduct some or all of the following expenses: interest paid, operating costs, property tax, insurance fees, and depreciation.
It Never Goes To Zero
As we mentioned above, other asset classes frequently go to zero. An example of this is one of the most prolific Ponzi schemes of all time: Enron. In the 1990’s, Enron became one of the hottest companies in the United States. It garnered a significant amount of investor capital, and subsequently, many people had their futures riding on it. What happened next was a tragedy for many investors.
The scheme was revealed, the company lost all its value, and their stockholders lost as well. In real estate, this will never happen. Because it is a tangible and highly practical asset, a property will always have value. Meaning that when you invest in real estate, you can rest easy knowing that your asset is built to last.
Hedge Against Inflation
One reason why people invest is to offset inflation. If you let your money sit in a savings account, inflation will slowly make it less valuable over time. If inflation is a concern of yours, and it should be, real estate is the best protection against it.
The reason is that while other assets lose value in an inflationary economy, real estate retains or even grows in value.
Rents increase with inflation which is the best hedge against it. This will allow you to keep generating the same amount of income despite the dollar losing value.
In the investing world, you cannot solely rely on appreciation in value. Aside from meager dividends, this is precisely what the stock market offers. Alternatively, real estate provides significant income generation.
Providing income no matter how good or bad the economy is. Values can rise or fall, but no matter what, you will passive income every month.
As you can see, there are numerous benefits to choosing real estate as your primary investment asset. It offers all of the upsides of the stock market and more, but with a fraction of the risk especially during inflationary times.
Ultimately, when you compare investment options against each other, real estate comes out on top. If you choose to invest your money in it, you will benefit from this effect for years to come.
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