Benefits of Investing in Real Estate
Real estate is normally held as a part of a larger portfolio which may consist of a variety of other forms of investment. It’s also frequently seen as an alternative investment class. It fits well into a portfolio of investments as it comes with several qualities which serve to enhance the returns that can be had from a larger portfolio. Simultaneously, it can help to reduce overall risk.
A number of the benefits to possessing real estate as part of your portfolio include the following:
The Diversification Value
This one is obvious. There’s a definite positive to come from diversification of a portfolio. However, the benefits arise not only in the allocation of assets, but also with respect to documentation.
Returns achieved from real estate investing have low correlation to other asset classes such as stocks and bonds or gold for example, which are regarded as more of a traditional investment vehicle, thus adding a healthy diversification to your portfolio.
Real estate permits you to actualize higher returns for a particular level of portfolio risk. Through the addition of real estate to your portfolio, it’s possible to maintain the returns while reducing the overall risk. Many investors prefer to stick to what they know and understand. Nevertheless, to broaden horizons as a way to offer a higher level of protection is a very worthy pursuit.
Returns from real estate are directly correlated to rents that are received from tenants. These days, it’s not uncommon for a lease to contain provisions for increases in rent to be indexed to inflation.
Otherwise, it’s more common that a rental rate increase occurs when a lease term expires and the current tenant moves out to be replaced by a new one. In effect, this acts as a seamless method where the new tenant is none-the-wiser and there’s no ill feelings to be had.
Either way, in inflationary environments, income from real estate does tend to increase more rapidly, which in turn allows an investor to maintain real returns.
Ability to Influence Performance
Real estate represents a tangible asset. Given this, an investor – the owner of the property – can do things to increase the property value or to make improvements to its performance. A few examples of this are: the replacement of a badly leaking roof; replacing the utilities; improvements to the exterior and re-tenanting the entire building with tenants of higher quality than previously.
An investor always has more control over the performance levels of their property investment than with other forms of investments, which is of course a major benefit.
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