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Why Real Estate Should Be A Part Of Your Investment Portfolio

June 11, 2020

Investments were always considered to be a good way to create the source of passive income, increase revenue and achieve financial freedom. However, the outbreak of COVID-19 has drastically changed the picture of the world and also influenced investment perspectives. Due to the events of the last few months, the performance of investments might be not as high as expected. On the other hand, it is a good chance to review your investment strategy. 

Real Estate Market
Real Estate Market

Now it is better to focus on the traditional investment approaches, like real estate investing, rather than putting money in the investment options with quick returns. The major benefit of real estate investing is reduced volatility. Despite the fact that real estate investments will not bring immediate revenue, this option is much safer than relying on the market-driven securities. In addition, the real estate industry is now facing the lowest interest rates in the past years. Also, the real estate market showed better results during times of recession than the stock market.

At the same time, the situation on the market makes people less confident about making purchases, especially the expensive ones as the house or apartment. Sellers are reluctant to list the properties and are waiting for the situation to change. 

Benefits of Real Estate Investing

Securities including mutual funds, equity and stocks are now extremely volatile. The crash of the stock market was caused by the problems with the supply chain and the closure of many businesses. Other forms of investments like gold were also affected by the coronavirus consequences and the financial crisis.

Real estate as a form of investment was not influenced by the crisis and price fluctuations because it is not traded on the exchange. On the contrary, now is high time to invest in real estate due to the lower interest rates and the increased attractiveness of the properties for potential buyers. For this reason, real estate investments are very profitable because they allow saving costs for investors. The psychological reason for having shelter and feeling of safety is also one more argument for homebuyers during the recent events.

Drawbacks of Real Estate Investing

The main drawback of the real estate investing is the difficulty with predictions about the final income, as the revenue depends greatly on the location and market cycles. In comparison with the stock market which has the index to evaluate the revenue, things are more complicated for real estate. The costs of real estate transactions are quite high and if your investment decision proves wrong, it will be difficult or even impossible to switch the property. 

Another disadvantage of real estate investing is liquidity. For instance, stocks have a high rate of liquidity. You can easily sell the stock and receive the money. However, real estate is the asset that is not so liquid. Sometimes it can take a really long time to sell the investment property. So, if liquidity is a priority for you, you definitely need to consider stock. Otherwise, you might take into account real estate investing.

Drawbacks of Real Estate Investing
Drawbacks of Real Estate Investing

Real estate vs Stocks

In the case of investing in real estate, we have the advantage. Investing in stocks provides the opportunity to receive income via dividends and income. If you are real estate investor, you will be able to rent out the investment property or receiving the revenue via appreciation. The amount of the rent is higher, in comparison with the dividends from the stocks. Furthermore, the rent is paid monthly, while the dividends are typically not regular.

If you are a novice investor then putting money in equity stocks will be a good option for you due to the smaller amount of the initial contribution. You can start investing in equity with any capital. With the systematic investment plan in a certain period of time, you will receive significant returns due to the interest. 

Real estate investment will be a suitable option for you if you can afford to pay out the mortgage loan. Later you will be able to rent out the property and receive the income from the monthly payments. Thus, you can repay the equated monthly installments with the help of the money earned through the rent.

Real estate vs Stocks
Real estate vs Stocks

The Bottom Line

Real estate is the type of asset that brings a good income but is also connected with quite a high degree of risk. On one hand, the higher is the risk, the greater amount of revenue will be received by the investor. On the other hand, if the risks are high, then the losses will also be more noticeable. 

The purchase of real estate includes not only mortgage loan payments but also a lot of additional expenses including improvements, repair and maintenance costs, the expenses for property marketing, leasing costs and many other expenses. 

Despite some drawbacks of real estate investing, now is a rare opportunity to get into a real estate market due to the low-interest rates. Real estate investing is worth considering for you if you are not afraid of the lack of liquidity and you are patient enough for receiving the benefits in the future. 

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