Investors who diversify into real estate outperform those who don’t.
Earn better returns by investing in real estate.
The “20% rule” states that an investor should have a minimum of 20% of their portfolio invested in alternatives like real estate. This rule was made famous by the Yale endowment, which has outperformed traditional endowments made up of only stocks and bonds for the last 25+ years. In fact, an investor who invested using the 20% rule in 1995 would have earned about twice as much as an investor who used a more traditional allocation.
“Buy land, they’re not making any more.” Mark Twain
An investor obtains financing and buys real estate property like a condo, single family home or apartment complex.
The investor leases to tenants, who pay rent. After expenses are paid, the remaining rental income is profit for the investor.
The property’s value may increase over time. If the investor sells the property, they may earn additional profits from the sale as a result of this appreciation.
Consistent cash flow
Unlike most stocks, real estate generates consistent cash flow (income) from rent. For investors in need of regular income from their portfolio, real estate can provide an attractive alternative to bonds, which also generate regular cash flow, but generally at much lower rates.
Real estate is a hard asset – it provides intrinsic value through its use as a home, office, factory, etc. Real estate is also scarce. There is only so much land in a given area. As cities grow, demand for real estate increases, while supply is limited by geography. This is why real estate assets have historically appreciated in value over time.
Take Back Control, Invest in Real Estate.
Stocks are volatile. Penny stocks and currencies even more so. Some trading companies will allow you to trade on leverage. That means if you buy 1,000,000 shares of a penny stock valued at $0.05, the trading company will not require that you fund your account with the full $50,000, it will let you buy the shares with only $5,000, BUT if the share goes down to $0.045, which it almost certainly will, you will get a margin call and your whole account balance will be wiped out.
With real estate, you can put the same $5,000 as a deposit on a $50,000 or even a $100,000 house, and rent it. If you have a renter, you don’t really care about the ups and downs of the market, as you are able to meet your monthly repayments. If the property sits empty for a while, all you have to do to keep it is pay the mortgage yourself. It isn’t fun, but it is much better than seeing your whole trading account annihilated by a margin call.
When you buy a stock, you never know, for as much as you study the company, if its CEO isn’t about to leave and the next one will run the company to the ground, if there is a merger with a less profitable company in the pipeline, or if an earthquake will destroy the production plant in China.
Your real estate investment will be a result of your own efforts. And real estate is tangible. When all the markets tank, you are trying to hold to your losing positions in hopes they will go up in a few months, or hurrying to sell at a loss before it gets worse. Real estate will bring you a monthly rent to cover the mortgage, even if you have negative equity. And in periods of economic turmoil, when people lose their houses to foreclosure or first time buyers are denied mortgages by the banks, you will have more potential renters than ever. When things go back to normal, home prices will increase and you can make a nice exit, sit it out until the next crisis, and go back in the game to buy low.
Paquin, Pauline. “Why real estate is one of the best ways to make money”. Huffington Post
Feb.206. Web. 16 Feb.2016