5 Advantages of Real Estate Over Other Types of Investments
Every type of asset has advantages and disadvantages. As an asset class, real estate is not free of all risks. There are no guarantees that your real estate investment will be a profitable one. However, real estate does have numerous advantages over other types of investments:
1. Real Estate Tends to Keep Pace With Inflation
Cash savings erode in value during times of inflation. But when the cost of living increases, your property value also tends to increase; and, if you’re renting out your property, you have the option to raise the rent. At times when you want to hedge against inflation, real estate investments are likely to be superior to investment options that provide a fixed rate of return.
2. Real Estate Is Tangible
People have numerous misconceptions about what wealth is. Paper money isn’t intrinsically valuable and therefore is not actual wealth; it’s only a claim on wealth. It only has value as long as people are willing to exchange it for other things. True wealth is tangible assets like property, fine art and precious metals.
If you invest in property, it is possible that the value of your property may drop dramatically; but, as a tangible asset, it is unlikely that its value will ever drop to zero. There is always likely to be at least some inherent value in a property. In contrast, the value of intangible assets such as cryptocurrencies could drop to zero.
Furthermore, as a tangible asset, real estate can be enjoyed. You can bake cupcakes in the kitchen of your house, gather with your family in its garden and savour the spectacular view from its deck. Your share portfolio isn’t likely to bring you such palpable pleasure.
3. Real Estate Can Be Improved
There isn’t much you can actively do to improve the value of your stocks, bonds, mutual funds or index CFDs. But with real estate, you have the option to improve the investment in countless ways. You can make repairs that enhance the value of the property. You can add landscaping or remodel the interior. You can even grow valuable timber, fruits, herbs and vegetables on the property to sell or use.
If you’re a creative investor, you can take action to consciously grow your wealth through strategic property improvements. This type of active wealth creation through improvement is simply not possible with many other types of investments.
4. You Can Borrow Money to Pay for Real Estate
Real estate is an investment you can indulge in using other peoples’ money. It’s technically possible to borrow money to pay for other types of assets, too. However, you’re likely to find that the terms are not as favourable for other asset classes as they are for real estate investments. You might also have a harder time finding willing lenders.
5. Property Rentals Can Provide Steady Cash Flow
Steady cash flow from a property investment isn’t a guarantee. If you hold a property in the long term, there are likely to be times when your rental unit is vacant. However, real estate rentals do offer you the probability of regular cash flow.
In contrast, investments like cryptocurrencies do not provide any cash flow; you’ll only make money on them if you’re successful in selling them to someone who is willing to pay more for them than you did.
Property isn’t the only type of investment that can generate cash flow; some stocks pay cash dividends to their shareholders. However, over the long term, property tends to be one of the most reliable asset classes for generating steady cash flow.
These are 5 of the greatest advantages real estate holds over other types of investments. Real estate investing isn’t foolproof, but historically it has been one of the most dependable ways to increase one’s net worth.
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