Why You Need Real Estate in Your Portfolio

If you have money invested in the stock market, you’re probably aware of the recent ups and downs. Money that seemed to be expanding rapidly just a few months ago can vanish overnight. Real estate investing provides a tangible asset that can be tracked to make up for this lack of stability and security.

Despite the benefits and generally lower risks, not all real estate investments are made equal. Diversify your portfolio across real estate, commodities, stocks, and more to reduce overall portfolio risk and assure consistent growth.

Why Should Real Estate Be Part of Your Portfolio?

Increased Cash Flow Yields

Many retirees haven’t saved enough to be able to rely entirely on bonds that are yielding 4 percent or on equities that are paying out 0 percent to 3 percent yearly dividends, respectively. In contrast, real estate investments typically generate annual cash flows of 8-12 percent plus, representing a significant increase in value.

Consider the case of a guy who requires an additional $2,000 in cash flow each month. If they exclusively invest in bonds with a yield of 4 percent, they would need to invest a total of $600,000 in bonds. Alternatively, they could invest $200,000 to $300,000 in commercial real estate and meet their monthly income target in that way.

Pay Down Debt

When you take out a loan to purchase rental homes, you need to make a monthly mortgage payment. As the mortgage is paid down, equity in the house grows over time. 

As the value of property increases and the mortgage balance decreases, you can refinance our properties by returning to either your present lender or a new one. As time goes on, the property’s rental income will gradually reduce the amount of the new, higher mortgage payment. To maximize your investment, make sure you engage with a specialist Real Estate Broker to ensure you get the right property at the right price to avoid damage to your portfolio.

Real Estate is A Tangible Asset

Intangible assets like stocks and bonds yield just a piece of paper as proof of investment. You don’t own anything. If the stock market crashes, your paper may be worthless.

Real estate is a tangible asset. Values fluctuate throughout time, and there’s no assurance they won’t fall, but tangible assets are worth something. If you need to exit the investment, you still have a property to sell.

It takes longer to sell a tangible asset since you have to negotiate with a buyer and go through the formalities. But, you will still get your money back and possibly a capital gain if all goes according to plan.

Tax Benefits

Investing in real estate that you live in gets you minor deductions. Most homeowners don’t itemize, so they can’t save on real estate. But even if you do, you can still usually only deduct property taxes and mortgage interest.

Real estate ownership is a business, not just an investment. The IRS permits you to deduct numerous expenses exactly like a brick-and-mortar store. It is possible to remove the costs related to the property (such as buying a laptop or going to the property) from your taxes. 

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