Is real estate a part of your investment portfolio? If not, it probably should be. Real estate is, in fact, one of the best ways to build wealth consistently. How does it differ from other investments? And how can you ensure the best success when adding property to your portfolio? Here are a few answers to your questions.
Why Is Real Estate a Unique Investment?
Just about all investments are bought with the same basic purpose: to appreciate in value and be sold for a profit. This is true of everything from bonds to antiques. But real estate's unusual feature is that it provides additional cash flow even while you hold onto it. Primarily by renting it out, you can hopefully pay the maintenance expenses, improve its value through renovation, and grow the amount of equity.
If the property exceeds the goal of simply paying its own way, you build wealth through cash flow while waiting to harvest the total appreciation upon sale. And it does this largely passively, requiring much less active participation than, for example, running a business to build income.
What Makes a Successful Real Estate Investor?
Of course, no investment is for everyone. The ideal real estate investor should do significant research into what type of real estate they want to invest in, what it will require of them, and realistic cost projections. Because real estate is a big commitment, it shouldn't be entered into on a whim or by those who don't have time to devote to setting it up for success.
Before embarking on a landlord enterprise, you should also have a good budget that includes plenty of savings buffer to pay for the property's expenses between tenants. Good planning will limit these periods, but the lack of incoming rent payments is one of the biggest risk points for this investment.
What If You're Not Ready to Become a Landlord?
Many landlords start out small, such as by purchasing a single family home, and see if the landlord life is right for them. But if you're not ready for even this step, you do still have the option of adding real estate investment trusts (REITs) to your portfolio. These trusts pool passive investors' money to purchase real estate and manage it.
Where Can You Start?
If you want to add real estate — in any form — to your investment plan, the best place to begin is by consulting with a financial planner who works with wealth management. They will help you assess your financial and personal readiness, create projections and forecasts, and decide how real estate should or shouldn't fit into your portfolio. Make an appointment today to learn more.
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