Is real estate a good investment? If you’re one of the millions of people who are interested in making money through investments, then you’ve probably considered the option of investing in real estate. But investing your savings in real estate might seem intimidating for some people due to existing preconceptions about real estate and the risks of investing in it.
So you ask yourself again, is real estate a good investment?
Before moving forward, let’s take a look at the number one reason that scares people away from investing in real estate:
Illiquidity
When asked the question “Is real estate a good investment?”, some might answer with a “No!” based solely on the illiquidity of real estate investments. What does illiquidity mean? Illiquidity refers to the relative difficulty of converting cash into an asset and vice-versa.
In most cases it is true that the stock market has a clear advantage over the real estate market when it comes to liquidity. On the stock market, you can complete your stock or bond transactions in mere seconds, turning your bonds or stocks into cash without having to undergo long procedures to make these transactions. In real estate, on the other hand, these transactions could be time-draining. It could take weeks, and even months, to close a transaction, even with the use of a broker.
Although the question “Is real estate a good investment?” remains the same, with time the answers can change. Illiquidity for example is one of the factors that give the answer “No!” to the question. But when we look at advances in technology and financial innovation, we will find many arising solutions to the problem of illiquidity.
This is partially due to real estate investment trusts (REITs) and real estate companies which are structured as listed corporations and can provide the option of indirect ownership of real estate assets. This options gives the opportunity of better liquidity for real estate investments as well as a better market pricing, but they come at a price: higher volatility and lower diversification benefits.
“Okay, but is real estate a good investment?”
That was one downside to investing in real estate, so now let’s move on to look at the reasons why you should be investing in real estate:
Appreciation and Inflation
Related: 6 Thing to Know About Real Estate Appreciation
When asking yourself “Is real estate a good investment?”, it is worth considering the value of appreciation in real estate investments. Take the following example as a good motivator:
You’re considering buying an income property for $235,000. You’re planning on renting out your rental property in order to generate a positive cash flow over the course of 30 years. If this income property had an appreciation rate of 3% on annual basis, within these 30 years your investment property will become worth $485,000. If that appreciation was only 1% higher (at 4%), your income property would be worth $649,000 in 30 years. This 1% difference made your investment property worth MUCH more than it was before.
Keep in mind that during these 30 years, you would still be generating a positive cash flow through rental income, which means that your return on investment (RoI) had already covered all the mortgage fees and maintenance expenses, as well as generated more positive cash flow for you, all while your property is appreciating in value.
Related: Is It OK to Invest in Real Estate Just for Appreciation?
When asking yourself “Is real estate a good investment?”, inflation might not come to mind as a negative factor. However, and despite the general outlook on it, inflation can actually be good for your investment if you’re investing in the real estate market.
A real estate investment is an inflation proof investment. This is because inflation causes rents to increase, while mortgages remain stable. This means that your cash flow can increase, while the expense of holding your property remains the same. Additionally, inflation has another indirect effect on rental properties in that mortgages become less affordable for the average property buyer, leading to a higher number of renters, which means more potential tenants for your property. This also means that the demand on rental properties increases, leading to higher rent prices in general.
“That’s great, but is real estate a good investment AT THE MOMENT?”
Real estate investing has never looked better
There are some reasons that make the question “Is real estate a good investment?” more relevant now than ever. Whether it is advances in technology or the status of the global economy, some aspects of our current time makes investing in real estate more attractive for newcomers and experts alike:
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Advancements in Technology
Technology is becoming integrated in more and more aspects of our lives each year. In recent years, these advancements have brought us technologies such as drones which augmented reality. New technologies have a high potential in the real estate market when it comes to marketing your property and advertising it. These technologies provide buyers, tenants, and investors alike with the ability to view a property from all different angles in order to get a close-to-real-eye look at the property in 3D.
Additionally, augmented reality gives realtors and buyers the opportunity to view a customizable version of the investment property with different types of furniture, installations, or improvements, without having to physically modify the property or change anything in it.
These advancements made the real estate market more user-friendly, with greater options for long-distance investors, and a decreased chance of getting scammed by good Photoshop users.
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New Home Construction
Why is real estate a good investment? Because the population is always growing.
One of the main reasons that make real estate a good investment is that the real estate market is always on the growth. 2017 witnessed a slow and unsure start in regards of the real estate market due to the political uncertainty that came with the new presidential elections and in the awake of the Brexit complications. However, things rapidly changed over the course of the year, and the real estate market began to witness a larger growth than in 2016. Single family houses, for example, saw a rise of 11% in 2017, in comparison to the 9% of 2016.
Related: Investing in Single Family Homes: Why it’s a Must
Additionally, the housing inventory seems to be 4.3% lower than it was in the previous year. With a higher demand and a lower supply of new homes, home prices continue to rise, which makes it a great opportunity for home builders to invest in real estate at the moment.
Conclusion
Is real estate a good investment at the moment?
Yes, it certainly is.
There are many factors that make real estate a good investment, and there are several other factors that make it a great investment AT THE MOMENT. The reasons mentioned here to answer your question “Is real estate a good investment?” do not cover the full scope of the answer. In reality, there are several other reasons why real estate is a good investment at the moment. Some of these reasons are local, some are global, and some could even be personal! But there is one undeniable fact…
“Is real estate a good investment at the moment?” For the last time – Yes, for sure it is.
If you’re interested in starting a real estate investment business, visit our website at Mashvisor and learn about the latest trends in the real estate world, and read our guides to help you get started. Also, don’t forget to subscribe and use the real estate investing provided in order to help you make the most optimal investment decisions and go for the best rental strategies based on the provided data, saving you months of research time and efforts.