Popular, Low-Risk Investment Strategies: Diversifying with Real Estate

Popular, Low-Risk Investment Strategies: Diversifying with Real Estate

May 30, 2018 My Blog by Chester Ray

Real estate investment has “traditionally” been a hedge on stocks and money market funds in that real estate and rent prices in particular aren’t correlated. During extreme economic downturns, like the one we saw in 2008, nearly every asset class can take a hit. The good news is that it’s more likely that both your real estate and your stock market assets turn out to be lucrative investments. Looking to diversify your portfolio and don’t already own real estate? Property investment is likely a solid choice compared to other investment options with plenty of opportunities still out there for many different types of investors. If you’re not especially handy around the house, a newer property can offer easy to maintain rental income for years. Hiring a property management company may eat into your margins somewhat, but buying a rental property can still deliver a low-risk, low-stress investment that helps diversify your overall investment/retirement portfolio.

 

Property Values vs. Rental Income

It’s easy to look at what the U.S. housing market has done over the last few years and conclude that there’s a lot of downside and less upside to property values. There are commercial and industrial properties, but this type of investment and property management is more than what most typical low-risk investors want to take on. Also, these markets have been just as hot as residential real estate in many areas. Moreover, you don’t have to be a seasoned, professional investor to remember what happened to the housing market starting around 2008.

It’s important to note that the underlying conditions that created the housing market crash are not nearly as prevalent today, starting with the fact that far fewer homebuyers have used the new infamous adjustable rate mortgages. Plus, in terms of evaluating your overall investment risk with real estate, it’s just as important to look at average rent prices and future forecasts in the rental market.

After all, one of the big differences with real estate is that, in most every case, the property is an income-producing investment. So long as you can fill the property with rent-paying tenants, there’s little pressure to sell or even much concern to fret over property values in general. On the other hand, the rental market demand needs to be strong enough to ensure that the rental income is enough to cover the mortgage and maintenance and thus continue to earn you equity in the property.

Even as the cost growth has slowed in some major markets, average rent prices continue to rise across the country. As MarketWatch points out, rising rental costs make home-buying a financially sound decision for many households even in the face of rising mortgage rates. Bulletproof isn’t risk-proof. It’s certainly possible that the rental market and the housing market fail to generate a big return, but real estate remains a solid asset class overall in terms of where to put your money.

 

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