Great Reasons to Invest in Real Estate

Real estate is the most well known and popular alternative asset class and there are many good reasons to invest in real estate. In this article we share with you some of the best reasons one must be investing in real estate especially in the current economic environment.

Excellent returns
Diversified long-term real estate investments provide excellent returns within the same range or exceeding traditional asset classes. Short-term real estate investments, like investments made into residential development projects (stands, apartments and cluster developments), can provide even higher returns. 

Good protection against inflation
Money supply growth has been fueling the rapidly increasing inflation, which is eating out the purchasing power of your savings. Inflation is often considered to be a form of hidden taxation, hidden because we do not see the outflow going from our pockets.

Real estate prices are very good in following the increase in money supply, inflation rate and wage growth over longer periods of time, and therefore real estate is a perfect asset class to protect yourself against inflation. 

Low volatility
While the long-term equity returns are attractive, stock markets are quite volatile. Real estate is a significantly more stable asset class, being able to earn rental income even during the recession. The reason behind real estate’s lower volatility arises from the fact that real estate transactions require significantly more time and money than buying and selling shares, so the number of transactions is significantly lower and the deals are more prudent.

Regular cash flow
When investing in rental properties or granting a loan to real estate developers, your investment will produce regular returns via rental revenue or interest payments. Reinvesting your regular investment income will improve your investments’ return rate even further.

Security
Real estate is a safe investment. By investing in real estate, you either become a direct or indirect owner of the property or, when lending money to the real estate developers, receive a mortgage as the collateral to your loan. In the worst-case scenario, the collateral can be liquidated to generate the cash necessary to pay back your loan.

Real estate is more transparent than financial assets
Understanding the real value of the listed company might be quite complicated and would need deep industry knowledge and financial analysis skills. Real estate investment, on the contrary, is usually very transparent and it is relatively easy to analyse the real estate development project’s cost and projected income. The same concerns rental properties, where the lease income and the costs of owning and maintaining the property are not too complex.

Direct control
Direct real estate investment decisions are generally made by yourself. You can choose to invest in different real estate asset classes and tune the investment’s risk-return profile to be matching your individual preferences.

When building a real estate investment portfolio, you are in direct control of any investment decisions you make.