- The real estate industry’s net worth is estimated at $3 trillion, expected to grow.
- Offers a steady income stream and potential for appreciation.
- Hedges against inflation for increased buying power.
- Accessible financing options are available with lower capital requirements.
- Diversifies investment portfolio with physical asset stability.
As an investor, many avenues exist to park your money and protect it against the inflation risks and dwindling returns of a low-interest-rate environment. However, one sector that has remained a perennial winner is real estate. Whether buying a physical property or investing in a real estate investment trust (REIT), the market has presented opportunities for new and savvy investors. Here’s a look into the state of the real estate industry, the reasons you should take a dip in it, and the best ways to get started.
The Real Estate Industry 2023
It’s estimated that the real estate industry’s net worth is at around $3 trillion last 2021. It’s a substantial sum, but the industry has grown steadily over time and is expected to continue such growth. Various factors have driven this expansion, from an increased focus on sustainability to a preference for virtual showings instead of in-person ones. Here are some reasons to invest in the industry.
Steady Income Stream
Real estate is the golden goose that keeps laying eggs in any economy. Unlike stocks, bonds, or cryptocurrency, the real estate market allows investors to earn a steady, passive income stream due to the recurring nature of lease agreements. Investing in properties such as rental apartments, commercial buildings, or storage facilities can ensure that investors can generate regular cash flows that can be used to finance other investments.
Potential for Appreciation
Historically, real estate is one of the best-performing asset classes for long-term investors. Owning a physical property can provide value in two distinct ways – through rental income and capital appreciation. As property values appreciate over time, investors can sell the property for a substantially higher value than they initially invested. While no investment is guaranteed, real estate is an outstanding way to create wealth over time.
Help Hedge Against Inflation
Inflation is a dreaded economic condition that can erode your wealth. However, real estate investments hedge against inflation, as rents and property value appreciation are expected to increase over time. Many investors also choose to leverage their investments, taking advantage of low-interest rates and increasing their investments’ buying power.
Accessible Financing Options
Real estate is one of the investments that can be easily financed through a mortgage. Even when you don’t have the total purchase price, the right property with a specific loan type can allow investors to finance most of the investment. As a result, investors can enter the market with lower capital requirements than other investment types, such as stocks or bonds.
Diversify Your Portfolio
Investing in real estate is an excellent way to diversify an existing portfolio of stocks, bonds, and mutual funds. Holding assets across different types of industries and geographic locations can help protect investors from market upheavals and stabilize returns. The physical nature of real estate investments adds stability to an investor’s portfolio.
How to Get Started
There are various ways you can get started in real estate. Here are three ways to get started.
Short-Term Rentals
One of the fast-growing subsectors of the real estate industry is short-term rentals. This strategy involves buying a property and leasing it out for shorter periods (typically one week to one month). Through services like Airbnb, investors can generate a steady income stream by periodically renting out their properties.
To get started, choose the property you want to purchase. Get an affordable mortgage loan from your local lender. Make sure to shop for the best rate and structure. Then market your property through online rental sites like Airbnb, HomeAway, or VRBO.
REITs
Real estate investment trusts (REITs) are corporations that own and manage a portfolio of properties for investors. They allow investors to invest in real estate without purchasing physical property. REITs also provide access to multiple properties in different locations, which can help diversify an investor’s portfolio.
Research and select the REITs that best meet your investment objectives to get started. Invest in these REITs through a traditional broker or online trading platform. Keep track of the underlying trends in each REIT to ensure you’re making wise investments.
Long-Term Properties
Buying and owning a physical property can provide investors with high returns over the long term. Investors should research different locales and target areas with strong economic fundamentals, such as job growth, population density, and infrastructure development. Research rental markets to determine the best properties for your investment goals.
When you find the right property, structure a contract with favorable terms and conditions. Keep track of all tax implications related to your purchase to avoid any surprises down the line. You might also need to hire contractors or other professionals to help manage upkeep costs associated with maintaining the property in top condition.
Real estate is an excellent avenue for investors looking for consistent income streams and potential appreciation opportunities. You can get started in this field with the proper tactic and knowledge and reap immense rewards.
