The advantages of adding real estate to an investment portfolio

Investing in real estate is steadily growing in popularity. Investors who traditionally focused on the three main asset classes are gradually introducing real estate investment into their portfolios. The following are some of the reasons:

Diversification

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Image Source: cbtownandcountry.com

The old saying “Don’t put all of your eggs into one basket” still holds true when it comes to maintaining a healthy, well-rounded investment portfolio.

Most investors understand the need to balance and spread out investments from various asset classes to minimize risk and increase returns. Diversification reduces the chances of losing all assets in a market crash. Real estate has little correlation with and are typically minimally affected by the highs and lows of stocks and bonds. Simply put, real estate value can go up even if stocks go down.

Income

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Image Source: realtor.com

Rent derived from a commercial property translates to a regular source of income, with the potential to become even greater if property values rise.

In addition, purchasing property at a low price can result in significant profits if sold when the property has appreciated, as it invariably does after a certain amount of time.

Investing in Real Estate Investment Trusts (REITs) also offer a source of income, as REIT investment instruments are mandated by law to pay out 90 percent of its taxable profits as dividends to its shareholders.

Hedge against inflation

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Image Source: economictimes.com

When inflation occurs, both housing values and rents go up.

Real estate returns are directly linked to the rents paid by a property’s tenants. Rent increases are generally fixed into the long-term leases of tenants, particularly in industrial and commercial properties. Rents of multifamily properties can be adjusted when leases expire, usually on a yearly basis.

The real estate market can be volatile, but adding it to an investment portfolio mitigates risk while providing opportunities for greater returns. Those considering investing in real estate, however, should consult an expert, such as a real estate portfolio and asset manager, for assistance and advice on exploring real estate investment opportunities.

Steve Liefschultz, Equity Bank‘s chairman and CEO, has more than three decades of experience in the real estate industry. Subscribe to this blog for more in-depth articles and news on real estate investments.