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In our previous post, we introduced the concept of assets allocation and its importance.
Real estate is the most well known and popular alternative asset class and there are at least 8 good reasons to invest in real estate.
Leaving aside the exotic and speculative investments, investing in the stock market has been a traditional way to reach high returns. The average long-term return of the diversified stock index like S&P500 has been around 10% per annum. Diversified long-term real estate investments provide a return within the same range. Short-term real estate investments, like investments made into residential development projects, can provide even higher returns. Mortgage-backed construction loans combine security with high returns and a short timeframe.
Good protection against inflation
The massive amount of newly printed money is fueling the rapidly increasing inflation, which will eat out the purchasing power of your savings. Therefore, 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.
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.
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. If you do choose to invest in financial assets you should perform your research thoroughly. And it must be country/region-dependent. For instance, if you live in Europe you should research the best real estate crowdfunding platforms or, in the stock market, the best brokers in Europe. The same concerns rental properties, where the lease income and the costs of owning and maintaining the property are not too complex.
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 the real estate investment portfolio on the real estate crowdfunding platforms, you are in direct control of any investment decisions you make.
Crowdfunding makes real estate investing easy
Real estate investing is theoretically quite simple – all you need is lots of cash and free time. The reality is quite different – the majority of people do not have enough free cash or time to become real estate investors themselves.
Regulated real estate crowdfunding platforms like Crowdestate provide you with cross-border access to a wide variety of professionally managed real estate investments. You can start with just 100 euros and a few minutes of your time!
How much should you invest in real estate? Read our next post to get some guidance on the subject!
Start or continue your real investing journey with Crowdestate!