Benefits of Investing in Real Estate
When we hear the word investment we almost always think about risk factors before we think about benefits. Focusing specifically on the real estate investment market, there are a few key benefits that make this arena a dependable option for those looking to invest.
Ever wonder why items such as gas, rent, food etc. go up little by little each year in price? This is due to inflation. Inflation is the substantial rise in general prices which is directly related to a rise in volume of money that results in loss of value of currency. It is common for inflation to be considered as a negative concept when dealing with day to day consumer economics, however in real estate, inflation is a major pro!
In the real estate world, inflation, in short raises prices. As prices go up, so do property values, and therefore one-way appreciation occurs. Take for instance those pursuing a cash flow income real estate investment. Investors who purchase apartment buildings can raise rent due to an increased inflation rate. Please see the article titled, "Interest Rates 101" for more information regarding Inflation. Other factors that contribute to appreciation are interest rates, location, future development plans, physical structure and quality of the property.
Remember the saying ‘its best not keep all your eggs in one basket’? Well, this same idea applies to investments when it comes to breaking up where one chooses to invest. Many of us invest in IRAs, some through our jobs pursue 401ks, CDs, stocks etc., and these different asset classes are great, but when a negative shift in the market occurs, it is often found that these types of investments all take a hit. However, pursing a different asset class such as real estate allows you to diversify your investment portfolio by strategically balancing investment risks. You may be down in one asset class, but you can then depend on your other investments (i.e. real estate) where you can continue collecting rent and dividends on a regular monthly schedule. The goal is to have multiple investment streams. Somewhere down the line it is realistic to project that a negative trend will at some point affect one of your investments. If you have a few different types of investments in various asset classes, you increase your chances of maintaining a consistent return ratio even if one of you investments declines over a period of time.