We all, to some extent, recognize the potential financial benefits we could get from real estate investing. It goes without saying that there are many benefits of investing in real estate that outweigh the costs, and you as an investor stand to enjoy a steady flow of income to secure financial freedom for the long
Real estate’s ups and downs in the past decade have spurred many investors to ask some hard questions about the role real estate plays in their overall investment mix. What percentage of my portfolio should be in real estate? What about real estate securities such as real estate investment trusts, or REITs? Do investment properties make sense in this market and for my circumstances?
How much you invest in real estate often depends on whether or not you own your home and how much equity you have built up if you do, says Greg McBride, CFA, Bankrate’s chief financial analyst. “For a lot of people, their home might represent a significant chunk of their portfolio. The risk may be that they are too heavily invested in real estate, not underrepresented,” he says. That said, for some people, real estate can be a good way to add diversification to your bond and equity portfolios.
Investment real estate can provide solid portfolio diversification over the long run because you are holding a hard asset with the potential for high long-term appreciation, says Kristin McFarland, director of strategic partnerships at Darrow Wealth Management..
Rental income can provide a solid revenue stream. “We usually estimate a 2% annual return while you are holding the property,” says McFarland. “That’s a different kind of return than the stock market, but it can sustain you until you cash in on the long-term capital gain.”
When you invest in residential rentals, you own a tangible asset that can provide a hedge against inflation. In fact, rents typically increase 2-3% per year and properties increase in value through appreciation. Therefore, this yields an asset that provides monthly cash flow .