With the last property downturn that buffeted both the United States and global economy still fresh on everybody’s minds, the idea of investing in real estate may not sound the least bit sexy.
But if there’s one thing millionaires and billionaires have in common, it’s a portfolio that comprises, among other investment vehicles, the real estate asset class.
Fact of the matter is, compared to stocks and bonds—and, if you’ve dipped your toes into the space, cryptocurrencies—real estate, by virtue of its being a tangible, physical asset, remains one of the most stable instruments to invest your hard-earned money on. It’s a sector that’s especially promising in emerging markets like Southeast Asia, which is currently in the midst of something remarkable: integrating a shared market of 600 million consumers, whose purchasing powers have been rising steadily, and a steady stream of multinationals and corporations coming in to establish solid presence in the region.
Indeed, the best time to invest in property in this side of the world is now. Still not convinced? Here are more reasons why real estate investment remains a popular investment instrument today…
Property has low barriers to entry
If you’re keen on investing in real estate, the good news is that you don’t have to be a millionaire to do it. The stable nature of real property makes it very accessible to first-time investors, as there are many financing options readily available. To get started, you may only need to pay around 20% down payment on a property; the rest can be financed with a low-interest mortgage or even personal loans.
Before you buy into the whole “location, location, location” business, take the time to educate yourself about the ways in which you can leverage your capital because the secret to success for most investors revolves around one’s financing options. Given the affordable entry point for investing, investors often use conventional financing to maximize their capital so they can buy more properties and thus secure more investment opportunities.
Investors enjoy instant returns and tax benefits
People will always need a place to live or work, such that the moment you purchase real estate, your investment has the potential to generate cash immediately because of the steady demand. This, of course, largely depends on the type of property you acquire, and whether you do it with or without financing.
Turnkey properties, for example, enable investors to immediately rent out the fully renovated home or apartment building they’ve purchased, thus receiving the first rent check at the end of the first month.
Investors are also able to enjoy tax deductions in real estate compared to other investment instruments. Rental property, for example, affords investors an opportunity to convert personal expenses to potentially valid business deductions. Other deductions include interest paid on mortgage, depreciation, property taxes, insurance, and repairs and maintenance.
Property investments appreciate and build equity
Long-term real estate investments not only produce positive cash flow every month, they also build equity. Because you pay off your mortgage with dues collected from your tenant, you are effectively using rental income to pay for your investment. The property you bought pays for itself.
Values also appreciate with time. When an investment with little to no tangible asset value, like a stock or a bond, dips to zero, you lose your money. The same can be said of a car which depreciates in value over time.
The recent financial crisis notwithstanding, real estate values have been on a steady upward climb ever since it was possible to own land. Time is witness to the fact that the longer you hold onto your real estate, the more yield you will generate. Even as land values drop during troughs in a property cycle, the market has always recovered from such dips and downswings. Those who end up holding on to their property during uncertain times stand much to gain the moment prices begin to appreciate.
Investors can diversify their portfolio and manage risks
It goes without saying that, as an investor, you want to avoid putting all your eggs in one basket. Diversifying your portfolio enables you to spread out and manage your risk more effectively.
Being a tangible asset, real estate is a good way to mitigate that risk. Your risk of loss is minimized the longer you hold on to your property, and because your property is a tangible asset, you can even leverage it to generate numerous income streams.
Be aware, however, that as with the stock market, there are still risks involved in real estate investment. Lower class assets produce higher yields but bring more risk for loss, while higher class assets lean toward the less risky side of the spectrum—so, depending on your appetite for risk, decide on your investment accordingly.