The real estate market has recorded a stable and continuous growth over the years. If you are thinking of an investment strategy that will help you save for retirement, give you continuous passive income, and develop a diversified investment portfolio, then think of real estate.
The following are some of the reasons why investing in real estate market makes sense over investing in stock market, mutual funds or in bonds.
- It has predictable cash flows from rental income
One of the unique advantage of investing in real estate is the monthly returns that an investor gets from the accrued rental income. These income flows are more predictable and stable compared to other forms of investments.
Investments which depend on income returns are always less volatile compared to the ones which rely on capital value returns.
- Appreciation in property value
Investing in the real estate market and especially in rental properties is a good investment decision due to the appreciation value that the property attracts over the years.
Any appreciation in property value provides an investment opportunity to the investor to either make a sale or reinvest in higher value promising properties.
Appreciation in property value also means higher cash flows from the rental income. As an investor, you can use it as stream of income to build your equity for other investment options.
- Helps in diversification of portfolios
Real estate market provides investors with a great platform where they can easily diversify their portfolios. It has a low risk profile compared to other highly volatile assets.
Therefore, when you invest in the real estate market, you are assured of higher returns in every unit of risk that you can expect.
- It provides an avenue for inflation hedging
If you are looking for an inflation-proof investment, then think of real estate. It draws its inflation hedging ability from the positive relationship that exist between GDP (Growth Domestic Product) growth and the increase in demand for real estate properties.
Therefore, any increase in rental demands leads to an increase in rental income as well as capital value.
When there is an increase in inflation in the market, the rental income also increases but the existing mortgage repayments remains fairly the same. An investor gets more cash flows while the expenses of the holding property remain stable which translates to an economic shield from effects of inflation.
- Real estate can be leverage
Another reason why investing in real estate in a wise decision is in its power of leverage. Here, the investors take advantage of this concept to use borrowed capital to increase the returns of a given investment.
The property mortgage is used as a leverage by the investor so as to reduce the amount of investment capital that is required for them to acquire another real estate property. Leverage frees up additional cash which can be used for other investments.
- Helps in payment of mortgage loans
The income generated from rental properties is re-invested and goes to reduce loan amortization. Over a period of time, the mortgage loan amount is reduced or cleared and the extra money becomes now available for other property investments.
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