Have you been considering adding a property to your investment portfolio? With the many benefits of investing in real estate, you’ll wonder why you haven’t done it sooner. With the right due diligence and a carefully selected asset, you could benefit from a steady cash flow, passive income, diversification, and competitive risk-adjusted returns.
So, if you’re thinking about investing in real estate, we’ve outlined some of the main reasons why it could be a great investment for you, where, like many investors, you’ll be set to make money through rental income and capital appreciation. If you’re prepared to invest over the long term, keep reading to find out more.
Income
The income real estate investors receive is typically from cash flow through rental payments and from capital appreciation, providing the property increases in value over a period of time. If you invest wisely and commit to improving the value of the property over time, you could be set to benefit from a healthy monthly income, as well as profiting in the future when you come to sell. Hopefully, if careful when choosing a property and location, it should help avoid or at least limit, any void periods where the property is vacant. Even if the property is untenanted for a while, real estate still gives investors a steadier form of investment when compared to more volatile investments like stocks and shares.
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Cash flow
In real estate, this refers to the net income from your investment after any mortgage payments or running costs, and renovation expenses have been deducted. Cash flow is used in properties that generate income such as buy to let investments like an apartment complex for students or young professionals, or a residential rental for families. This type of income is one of the main reasons people choose to invest in real estate as once the mortgage is paid off; you can build up the equity in your property. Rental payments are also likely to rise as time goes on, which can give landlords an even higher cash flow.
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Capital appreciation
As well as making money through rental income, real estate investors can also generate a profit via capital appreciation. The value of a property usually increases over time, and if you choose the right investment in a highly sought after area, with little renovation costs, you can be sure to turn a substantial profit when it’s time to put the property back on the market.
Tip - spend time researching the area you’d like to invest in and contact local real estate agents or property companies to help narrow down your search to find the best places for your investment. There are multiple guides available online from companies like RWinvest who can help point you in the right direction.
Portfolio diversification
Another reason why you should invest in real estate is to diversify your portfolio. Securing a mortgage and investing with debt is considered safer when it comes to acquiring property. Providing you can come up with a down payment, the rest of the property’s cost is then financed which is a lot less risky than perhaps investing in stocks with debt as the market is more volatile, and the risk will be greater. By diversifying your portfolio your investments should take turns as to when they’ll provide you with the greatest returns, and as we approach a recession, evidence shows that real estate performs surprisingly well during an economic crisis.
