Savvy investors often turn an eye towards real estate as a way to diversify their portfolios and reduce risks. Any investment is a risk, but if you add real estate into the mix, it provides a level of stability because you can typically escape the volatility often associated with the traditional stock market. Check out the following other reasons why real estate makes a smart investment strategy.
Gain a Steady Source of Income
At the most basic level, by purchasing a second home, you can rent it out to help offset the cost of owning and maintaining the house. Multi-family properties are even better: more doors = more renters. The key to success is to do your research and buy a property in an area that is high in demand so you can keep it continuously occupied. Preferably, you find a property where the rents have been lagging for some time and you are able to bring them to market value. A vacant property isn’t going to earn you money, but consistently rented homes ensure you have steady cash flow which you can use for whatever you want – maybe even to reinvest in other ventures!
Leverage Your Investment
You can’t put a down payment on stocks. If you invest $20,000, you receive $20,000 worth of shares. Option trading allows leverage, but it involves a greater degree of risk and you need special approval for that. Not so with real estate. If you find a good deal on a property or obtain favorable loan terms, you can make your down payment and borrow the rest. In other words, your $20,000 can buy a property worth much more than your initial investment and you can begin to earn equity…which brings us to the next advantage.
Use Equity to Increase Your Real Estate Portfolio
As you gain equity in your property, you can refinance, borrow against your equity, and buy additional properties. Depending upon the current housing market, you may even be able to take out just a small loan for your next property, building equity in your new asset as well.
These are three primary reasons why real estate is a smart investment strategy. However, there are several more. Other potential advantages include tax benefits, financial security, control over the investment, and a hedge against inflation.
The multitude of investment options to explore is also a key advantage. For instance, you can pursue renting properties, house flipping, micro flipping, or house hacking, to name a few strategies. The possibilities are many!