Apr 10 2017
There’s a reason people invest in real estate: it’s a smart investment. Say what you like about the stock market or gold, property has people coming back, time and time again.
The question is, why?
The main reason has to do with the fact that the price of real estate is unlikely to go to zero. Unlike stocks, which oscillate on a daily basis, property seems to keep going up, year after year. Even in the financial crisis, property prices in some areas didn’t fall – and even if they did, they soon bounced back in 2010 and 2011.
Real estate investing is also being driven by the actions of the Federal Reserve. At the moment, it’s holding interest rates really low, forcing investors to find alternative ways to get a return on their savings and build their wealth. Not only are they putting their money into stocks, but they’re also taking it out of the bank and putting it into real estate too. Many investors hope that this will help them avoid the inflation which many see as inevitable. Houses can’t be inflated away.
The sorry state of the macroeconomy isn’t the only reason why you should be investing in real estate. Here are a bunch of other reasons why property might be the investment for you.
Asset Value Appreciation
Property values have been increasing for well over half a century according to the Case-Shiller index – something which compares the value of housing to the median income. The higher the Case-Shiller index, the faster house prices are accelerating compared to wages. This historical pattern of rising house prices relative to wages is one of the reasons why people have been investing so feverishly in property. They want to capture some of the returns and build their wealth using an asset which performs better than most other classes of assets, as well as economic fundamentals.
Joe Nahas, CEO of Coronation Property, recently spoke of his success in the property business. According to reports, he managed to sell more than $110 million worth of residential units within hours after announcing that apartments in a building he managed were for sale, a significant premium over the price of the building itself.
It’s A Physical Asset
Another benefit of investing in property is the fact that it is an income-producing asset which will be valued in the future. Investors, for instance, don’t mind paying premium prices for property since they know that they will be able to generate an income from it in the future. What’s more, even if prices fall somewhat, they’re still able to claw back the majority of the value of the property simply by selling.
Low-Cost Debt Can Multiply Cash Flow
Houses are expensive. But in a world where the price of accommodation is high, and the price of money is low, there are many opportunities for investors. Say, for instance, you take out a mortgage on a new property you rent out. Your mortgage interest might only be 2 percent of the total value of the property every year, but you may be able to make 6 percent of its value every year, just renting out, pocketing the 4 percent difference.