Why Investing in Real Estate Is a Smart Idea

There’s no better time to be a real estate investor than today. Considering that home prices are expected to see a noticeable rise by the end of the year, investors can take full advantage of this. This appreciation rate also depends on the area, as regions like New Jersey, West Virginia, and Rhode Island see price changes that go higher than 10 percent.

Whether you are a beginner investor or someone with experience, real estate is a great option to diversify your portfolio. Modern technologies such as the REI Lense real estate investment calculator make it even easier for you, bringing you closer to the best opportunities. Considering these, we will present a few benefits of investing in real estate.

1. Financial Stability and Real Estate Investment Returns

For many investors, putting your money in real estate is pretty much synonymous with creating a stable financial foundation. Many markets tend to fluctuate and become irrelevant based on trends, and global changes might cause one stock to become more valuable than another.

For example, oil used to be a powerful thing to invest in, but as people are focusing more on sustainability, they’re switching from oil to cleaner energy. No matter the reason, people are consuming less oil now, and it’s already been predicted that there will be a significant decline by 2029. Times are changing, and people have other priorities.

However, if there’s one thing we know about humans, it’s that we’ll always need a roof over our heads. If we don’t buy, we rent. And as the population is expected to grow significantly in the next three decades, more people will need houses to protect themselves from the environment.

This exact demand for new homes makes home prices soar yearly. In the last 60 years, home prices have become more expensive, going twice as high as the average inflation rate. This is not good news for the average home buyer, as they’ll have to pay a lot more for the property. However, this is excellent news for an investor who made the right decision at the right moment. Even during global uncertainty, you can trust that people will need homes, and this demand can cause the prices to surge.

2. Diversification of Investment Portfolio

Every investment type comes with risks, and you can lose a lot if you are not careful enough. Just look at the global financial crisis of 2008, where stocks and equity began plummeting left and right.

The examples go even further, with the Dot-Com burst causing the S&P 500 to go down by 51.9 percent. During this time, property values remained stable, so those who invested in real estate had little to suffer. The crash in 1929 also proved just how easy it is for stocks to lose their value. If this is your only investment method, the whims of the market can put you at risk.

However, diversification can bring a balance. Taking the financial crisis of 2008 once more as an example, while stocks and equity went lower, rent costs grew progressively higher. This happened because there was great competition for affordable homes, but very few new units were available to keep up with that demand.

This type of balancing act benefits investors because if one of your investments goes badly, you at least have the other one to fall back on. So, if you are wondering, “why is real estate a good investment?” it’s because it minimizes your losses, acting as a buffer in uncertain times.

3. Real Estate Inflation Hedge

Inflation rates have consistently increased with time, but this also depends on the year. For example, 2022 saw one of the highest inflation rates in the last years. That rate is getting lower now and will continue to decrease by the time 2028 turns a corner.

This is because investments such as bonds, annuities, and commodities with no utility growth (e.g., gold) tend to lose a lot of value during these times. Savings accounts also have a lot to suffer since annual interest rates are generally lower than the average inflation rate. Even with your best efforts, you might have a difficult time recovering from these shifts.

In contrast, home prices tend to surge every year. At the moment, the housing market has slowed, but we can still observe a small, but steady growth. Rental rates have also increased every year, which means that as everything is getting more expensive, your investment should appreciate alongside it. Not to mention that you get the opportunity for dual income: you can keep it for selling, but in the meantime, you can maintain your wealth by getting rent.

Plus, one advantage of real estate is that it can become more valuable as time passes. One might think that modern homes are the ones that fetch the highest prices, but they’re just like classic cars: the older they get, the more they can fetch if they are well-maintained. A historic home is usually sold at a 5.3 percent higher price than a modern one of a similar size. Everything is getting more expensive, so your investment will increase in value in the long run.

4. Opportunities for Leverage

Leverage is one of the greatest tools an investor can use, especially if they focus on real estate. With this, you can amplify your real estate investment returns even if your upfront capital is limited. We have mortgages or loans to thank for that, as they combine your personal funds (i.e., the down payment) with borrowed money. In the end, you won’t have to commit to paying the full price immediately.

Leverage can be used to make investments at a higher value than you could afford. For instance, let’s say that you have $100,000 set aside and buy a small house with that. If that year sees a 5 percent appreciation for properties, your return based on that number should be somewhere around $5,000.

Now, let’s say that you use the same money and choose to buy a bigger house with a mortgage. That $100,000 could be used as a 20 percent down payment for a $500,000 home. Taking the 5 percent appreciation example once more, the initial $100,000 investment can bring a return of 25 percent, which puts you at an extra $25,000 earned.

Now, you may be thinking: “But I’ll eventually have to pay that sum back!” This is where a good strategy comes in. For example, you can buy a property and allow it to appreciate, and then set the monthly rent for tenants high enough to cover it. The house will practically be paying for itself, making it particularly beneficial if you are buying a second property.

Plus, if you’re looking for long-term investments, this strategy can bring you even more returns, thus mitigating your risks. For example, rent costs have already gone up by 19 percent in the last 5 years. In contrast, mortgages tend to have fixed payments, from the first to your last payment.

Even if you set the mortgage to cover the rent exactly, inflation can eventually help you turn in a profit. And all that was needed was some leverage to get you started. The REI Lense calculator could help you find the best real estate investment opportunities, creating a good strategy.

5. Tangible Asset with Practical Uses

Investing in digital assets such as cryptocurrency and sticks can indeed bring rewards if you are smart enough with your investments. However, these assets are non-tangible; if the worst happens and something crashes, you’ll likely have a big pile of nothing on your hands. Real estate is different because this asset is tangible and won’t disappear based on the market’s whim.

Take the crypto crash of 2022, for example, where investors lost millions, perhaps even billions of dollars. Even Bitcoin struggled to hold itself at a $50,000 value, and other than letting it sit there, there wasn’t much you could do. On the other hand, property would not just dissolve into thin air.

Plus, these assets have practical uses while you are investing in them and won’t just sit there as they appreciate. You can use a house as your personal residence, a vacation home, or even a rental property. The latter can be quite advantageous, as it can bring steady monthly income. Considering that 77 percent of people prefer to rent rather than own a property, you’ll likely find tenants in no time at all.

The Bottom Line

For a long time, real estate proved a valuable investment compared to other assets. It offered financial stability, helped offer leverage, diversified your portfolio, and consistently resisted inflation. By using tools such as the REI Lense calculator, you could find the most rewarding real estate opportunities and create a good long-term strategy. The sooner you get started, the better your returns should be.