Over the last 50 years or so, investing in real estate has become a popular vehicle in the sector. knowing that REALIFF was founded to be a contributor for those seeking opportunities to invest in properties. Your home is probably the first thing that comes to mind when considering investing in real estate. Of course, investors have many other options for investing, and they are not all physical properties. For a good reason, real estate has long been regarded as a sound investment. Before 2007, historical housing data suggested that prices could continue to rise indefinitely. With few exceptions, the average sale price of a home in the United States increased yearly between 1963 and 2007, when the Great Recession began. Home prices did fall slightly when the COVID-19 pandemic began in the spring of 2020. However, as vaccines became available and pandemic fears faded, home prices accelerated, reaching all-time highs by 2022 which made investing in real estate attractive!

Why investing in real estate?

Owning a property can improve an investor's risk-return profile by providing competitive risk-adjusted returns. Generally, this market has moderate volatility, particularly regarding equities and bonds. Compared to more traditional income return forms, real estate is also appealing. This asset class often trades at a yield premium to US Treasuries. It is especially appealing in a low-interest-rate investing environment.

Diversification and protection

Another benefit of investing in real estate is the possibility of diversification. Because it has a low and, in some circumstances, negative correlation with other main asset classes, it often increases when equities fall. Investing in real estate can minimize volatility while enhancing return on investment per unit of risk. The more direct the investment, the stronger the hedge: Less direct publicly traded vehicles, such as REITs, will reflect the stock market's overall performance. Because it is supported by brick and mortar, direct real estate investing has a less principal-agent conflict or the amount to which the investor's interest depends on the integrity and competency of managers and borrowers. Even more indirect types of investment offer some amount of security. For example, REITs require a minimum percentage of profits (90%) to be dispersed as dividends.

Hedging Against Inflation

The ability to invest in real estate to hedge inflation stems from the positive relationship between GDP growth and demand for real estate. As economies grow, the demand for real estate rises, resulting in higher rents and higher capital values. As a result, real estate tends to maintain capital purchasing power by passing some inflationary pressure on tenants and incorporating some inflationary pressure in the form of capital appreciation.

The Influence of Leverage

Except for REITs, real estate investing gives an investor with one instrument that stock market investors do not: leverage. The use of debt to fund a larger purchase than you have sufficient cash for is known as leverage. Unless you are purchasing on margin, you must pay the whole purchase price when you place your order. Even so, the percentage you can borrow is still much lower than with real estate because of that magical financing mechanism, the mortgage. The majority of conventional mortgages need a 20% down payment. However, depending on your location, you may be able to obtain a mortgage with as little as 5% down. This means that by simply paying a part of the whole value, you can control the entire property and its equity. The size of your mortgage, of course, influences how much ownership you have in the home, but you have power over it the moment the papers are signed.

This is what drives both property flippers and landlords and makes them find investing in real estate appealing! They can obtain a second mortgage on their first residence while also making down payments on two or three additional houses. Whether they rent them out to pay the mortgage or wait for a good chance to sell them for a profit, they have control over these assets despite only paying a small percentage of the total worth.

How Can I Add Real Estate to My Portfolio?🤔

Aside from directly purchasing properties, ordinary investors can purchase REITs or funds that invest in REITs. REITs are pooled investments that own, manage, and/or own mortgages on properties. Furthermore, you can use online platforms like REALIFF and realtor , Zillow to consult with industry professionals and even save some money on your purchases if you are going to try investing in real estate!