When investors mention property investment in a personal portfolio, you will hear words such as hedging, stability, inflation, and high returns, but what are the key things that make property investment a vital ingredient in an investment portfolio?
In this article, we will look at the core features of a good portfolio. We will look at the seven things that real estate can add to your collection.
A good investment should not leave you dry through the entirety of the investment period. Consider other investments such as stocks and mutual funds. They all have maturity periods and termly payments. Investing in property works the opposite of that. While your investment continues to grow, you continue to reap the benefits from rental income.
Some people think that taxes and property management can eat all the rental income. That cannot be further from the truth. Rental income continues to grow because many people prefer the rent option. Interest rates have also gone up during the same period, but at a slower rate than income. This trend has helped investors reap big.
If you want a portfolio that guarantees you passive income every month, you have to consider putting your money on properties.
2. Tangible asset
Some people are just old school; they prefer to invest in something they can see and feel. If you are one of those, then look into property markets. If you start a business, anything can happen, and it crumbles. We have seen companies collapse after a single day of espionage. The same case applies to company stocks.
Managers can do anything without your consent. Their actions can spell doom to you in one early morning where your stock value reduces to pennies on a dollar. Stock volatility happens all the time; don’t bet that it will never happen.
If you are looking for that solidity of a tangible asset, your investment portfolio should have a couple of real estate items.
3. A second thought
The property market is largely illiquid. It takes several months to offload a piece of the property making it impossible to make rushed decisions. If an opportunity comes to you, you will not be quick to sell your condo or family unit to arrest the opportunity. It prevents you from falling for shoddy deals that promise you heaven in weeks.
The property ties you down to a long-term investment strategy where patience is a virtue. According to most successful investors, patience is an asset that every investor should have. Real estate forces you to fasten up even when things are tight. In return, commercial real estate investors can enjoy almost 10 percent returns annually.
4. Building equity passively
Most investments will require loans because saving is not a cup of tea for most people. Mortgages exist on the premise that the property will have a higher value tomorrow than today. That is why mortgage firms can give you up to 100% of the property value.
If you use a mortgage to buy property, or any other term loan, you can use the income from the estate to pay off the loan. Rental income is enough to pay monthly premiums for a mortgage. That gives you an opportunity to buy properties without really hurting your take-home income.
Every investor wants certainty when it comes to his or her money. Any other investment does not depend on you concerning decisions. For example, if the broker decides you are not a priority, he or she might close other trades before yours.
The fact that you have seen the numbers looking good in the morning when you make an order to buy or sell a stock does not mean that is the price you will get at the end of the day when the sale finally closes.
With real estate units, you can make that decision anytime you want because you are in charge. Even if you hire a property manager, he or she will still consult you before making a significant decision that can affect the value of your property.
6. Tax and inflation
Anything that can bring the tax burden down is always welcome. The taxman rewards property owners in a variety of ways, one of them being reduced tax obligations. Rental income is exempted from self-employment tax. You also pay a lower rate for long-term real estate earnings compared to what you pay from other investments.
Concerning inflation, properties effectively hedge you from any impending inflation. The demand for real estate increases whenever the economy grows, which increases rental income and property values.
The property shields you away from both the taxman and the scourge of inflation that can quickly eat away any capital gains in stocks and options.
Assume you have saved enough money to invest $250,000. If you go any other way apart from real estate, your funds will stay there until you start earning an income. However, you can use the funds to put up down payments for several properties, and use the rental income to pay up for the remainder of the loan.
If the cost of down and related expenses is $50,000, you can buy up to five units. After 20 or 30 years, depending on the mortgage period, you will have five properties.
Alternately, you can buy one property on cash with your money, and then mortgage it to buy more properties. You can repeat this every time you have enough credit to get more loan using the assets as collateral. Unlike stocks and other investments, you need very little research to do this. All you need is to understand how interest rates, economic growth, and demographics affect property prices. According to Pumpedonproperty, you don’t need to know all this information if you have reliable agents.
If you want to balance your investment portfolio, add real estate. It will diversify your portfolio to add liquidity, solidity over time, control, passive income, and much-needed hedging.