Diversify your portfolio by seeking investment opportunities in multiple fields. While you are looking at various investment opportunities, do not miss out on the chance to invest in real estate. Now, you might ask “is real estate a good investment?”
Yes it is a good opportunity. But how so? Let’s take a deep dive into the investment opportunities in the real estate market in this blog. Leverage them to build your personal wealth. There are a few advantages of investing in real estate.
4 Benefits of Investing in Real Estate
- Cash Flow
Wondering how is real estate a good investment? It is about the net income that comes from a real estate engagement after the payment of the mortgage. One of the benefits of real estate investments is that it generates cash flow. In some cases cash flow only strengthens over time. This helps to keep your invested money coming back to you.
Investors of real estate make money through rental income, any profits they are able to generate by property-dependent business ventures and appreciation. So, what way does appreciation work to influence ” how is real estate a good investment?” The answer lies in its value.
Real estate values seemingly increase over time. A good investment can turn a profit when it’s time to sell. Rents also tend to increase over time which means you can have higher cash flow.
- Build Equity and Wealth
Paying down property mortgage helps to build wealth and equity. This is important as it is an asset that is part of your net worth. As you build equity, you have the leverage to buy more properties to increase your cash flow and wealth.
- Portfolio Diversification
Amongst the benefits of the investment in real estate is the diversification of investments. So, how is real estate a good investment with a diversified portfolio? By diversification of your investment portfolio, you can curb potential losses and even benefit from the profit of such investments.
In short, it lowers your portfolio volatility and provides a higher return per unit of risk. While the benefits might help you to make good returns on your investment, like any other sector, real estate too can dip if the market volatility factors are against it. Having discussed the pros and cons of real estate investing, you also need to be aware of the drawbacks.
So, is real estate a good investment when it has shortcomings? Let’s see those shortcomings.
Shortcomings of Real Estate Investment that Makes You Seek Other Opportunities
- High Cost
You need a high capital for this type of investment. You must provide for your down payments, EMIs, insurance, property taxes, stamp duty and more. This is the primary reason why people tend to resort to home loans when they want to buy houses.
- Long-term Investment
Investing in real estate means profits and returns that are long-term. They will slowly and gradually grow in their value. But how is real estate a good investment especially if it is a long-term one?
Remember real estate is a tangible asset. You hold onto it for a long time. You cannot easily liquidate it in case of emergencies. Neither can you frequently buy or sell it. Therefore, for those who are looking for a long-term tangible investment, real estate is the best option.
- Legal Difficulties
Investing in real estate is a little tedious. There is a lot of paperwork and even cumbersome formalities that are a hassle. Also, jurisdictions can enforce land ceilings which can make investment a little riskier.
- Liquidity Constraints
Real estate investments are not liquid investments. We touched on this point earlier. You cannot easily dissolve these investments. If you bet a huge amount of money on it, and cannot find potential buyers or sellers then it becomes a problem. It also takes a lot of times to find a subtenant.
- Maintenance Costs
Maintenance fees are exorbitant in many cities. In larger metropolitan cities, higher property taxes make it necessary to sell the house at an elevated price. Owners also have to bear monthly expenses that will go towards the maintenance of the property.
- Property Taxes
This last tax is a variable. It depends on the property’s location. As an investor, you must factor in the property taxes to value the property to consider if it would generate profitable returns.
So what should you do if the real estate market dips one day? You need to have investments in other sectors to balance out the loss you could potentially incur. In this debate of “is real estate a good investment”, you must have some backup options so that you do not suffer huge financial losses.
While investing in real estate can do wonders for your personal wealth, let’s not forget the importance of diversifying your portfolio. But seeking out multiple investment opportunities, you can enhance your investment portfolio in multiple folds through various channels. Also, it keeps you “safe” when one asset dips in the market, the other one always rises.
Find out is real estate a good investment option for building personal wealth over time.
6 Investment Opportunities Beyond Real Estate
- Private Equity
This is a broad category that refers to capital investments in private companies. It has various subsets:
- Venture Capital- focuses on start-ups and early stage ventures l
- Growth Capital- helps more mature companies to expand or restructure
- Buyouts- due tp purchase of a company or its divisions
There is another one that makes your investment grow beyond real estate. That is private debt. Let’s see how it helps.
- Private Debt
Private debt is money invested in a way that’s not through a bank loan or on a public market. It’s called “private” because of the investment type, not the borrower. Both public and private companies can use private debt to get more money for their businesses.
So, wow is real estate a good investment if you have private debt. Private debt funds are the companies that provide this money, and they make money through interest payments and getting their initial loan back.
- Hedge Funds
Hedge funds are investment funds that trade things that you can convert into cash. They use different strategies to generate money. Hedge fund managers can have expertise in things like buying and selling stocks, balancing risk, and using calculations to make investment decisions. Hedge funds are exclusive, meaning only big investors like institutions and wealthy individuals can join in.
Commodities as investments include buying physical assets like renewable energy products. As an investor, you can also participate in commodity investments through ETFs (exchange-traded funds) or mutual funds. Let’s see how is real estate a good investment through these two options.
- Mutual Funds and ETFs
With the mutual funds and EFTs you can invest in real estate opportunities in easy installment.s it will not burn a hole in your pocket. These are definitely not for short-term investors. This also allows you to diversify your funds.
With digital currency on the rise, cryptocurrency falls under this list of “how is real estate a good investment and what are its alternatives?” This lies outside the traditional scope of stocks and bonds. Cryptocurrency does offer capital appreciation or passive income due to staking rewards.
FAQs:Is Real Estate a Good Investment?: Exploring Investment Opportunities Beyond Real Estate
What are the key factors for investing in real estate?
ROI (Return on Investment) is the holy grail of all metrics. Apart from that there are costs, time to goals, tax considerations and liquidity. Evaluate all potential options across these five categories to see if they suit you.
Are there different types of real estate investments?
There are few types of investments like residential, commercial, Raw Land & New Construction, Real Estate Investment Trusts (REITs) and Crowdfunding Platforms. The commercial investments are the best because of their potential for higher cash flow.
Can I invest in renewable energy projects for real estate projects?
Yes, you can invest in renewable energy projects that will provide sustainable energy to rea; estate opportunities with Sustvest.
How do real estate investments affect your taxes?
Your taxes are on the capital gains you make by selling the property. If you have had the property for at least two years, then you are eligible for long-term capital gains.
What are the risk mitigation strategies of real estate investments?
Diversification across property types can mitigate risks. Seek a balance between properties that generate immediate cash flow and those with long-term appreciation potential.
Avail the expert advice from professionals at SustVest to help build your wealth. Get consultation on what kind of portfolio meets your investment goals. The portfolio manager will set up a plan that helps you to achieve your financial goals and grow your personal wealth. As you learn the answer to “is real estate a good investment”, seek out lucrative opportunities with the advice of the professional to get high ROIs and better investment opportunities for your portfolio.
Founder of Sustvest
Hardik completed his B.Tech from BITS Pilani. Keeping the current global scenario, the growth of renewable energy in mind, and people looking for investment opportunities in mind he founded SustVest ( formerly, Solar Grid X ) in 2018. This venture led him to achieve the ‘Emerging Fintech Talent of the Year in MENA region ‘ in October 2019.