What’s the most valuable asset in the world? That’s right — it’s gold. As one of the world’s leading asset classes with a market cap upwards of $11.6Tn, investing in gold is not a bad idea! What’s interesting about real estate is that it similarly affects investors by offering high returns and long-term capital gains if you buy a great property at the right price.
Sure, real estate doesn’t look as flattering on an infographic as a bar of gold, but it is a powerful investment tool. If gold’s market cap was overwhelmingly large, then brace yourself because real estate is valued at over $280Tn. As the largest single sector in the world, it is a more valuable asset class than all the stocks, shares, and bonds combined.
So if you’re thinking of spreading your capital across different asset classes, then real estate might be the right choice for you.
Whether you’re a novice or an experienced investor, owning real estate, be it through a fractional model or otherwise, is an opportunity worth exploring to up the ante of your portfolio. What it all boils down to is one simple truth… property will always be in demand because people will always need a place to live!
Why Real Estate (for real though)...
Real estate is an attractive investment for several reasons, and we’ve scouted some of our favorite resources to compile a comprehensive list that breaks down how this asset class can provide value.
Feel free to share this article with your friends to spark conversation around different asset classes.
All asset classes are inherently volatile to a certain degree, but what makes real estate stand out from the pack is the fact that it’s always in demand. We take for granted that necessities like food, water, clothing, sleep, and shelter are essential for one’s survival. See that? Shelter always makes the list!
However, we think that volatility has a bad rep… when we hear it in conversation, especially without any context, we immediately think: decrease! However, this may not always be implied as there is potential for value growth too, based on the circumstances like the following:
- If a property is perceived to be in poor condition, it comes as no surprise that unless it’s maintained consistently, it is worth less than it would be had it been well-preserved.
- An investor favorite – “forced appreciation”. A property’s value can be raised intentionally by implementing improvements either through maintenance and/or renovations to enhance the space’s look and feel, as well as its appeal for those looking for modern spaces.
…is visibility. This might seem insignificant on the surface when compared to other benefits the asset has to offer, but it’s not one to take lightly. Assuming ownership in an asset that exists in material form provides great value, especially when compared against assets like stocks whose visibility is mainly limited to chart form. That’s not to say that stocks aren’t great investment opportunities, they are! And, we highly encourage investors to pursue and invest in assets to diversify their portfolios.
Still, concerning tangibility, we’ve listed some of the key reasons below as to why we think this is a factor worth considering:
- The positive psychological effect stems from the fact that as an investor in real estate, one gains a strong sense of ownership, be it as a full or partial owner, as the asset not only exists in material form but appreciates in value.
- Remember when we said earlier that real estate has been and always will be in demand? That means that the asset holds significant monetary value and as ownership may be transferred over time, the asset can be transacted (assuming the market is liquid).
Since we touched on the value behind value appreciation (haha, get it?), let’s build on that. One of the core benefits of real estate is that property values grow over time like that of equities, for the reasons we already listed above.
Additionally, forcing appreciation is not a new concept, as it is a highly favorable option for a property that may not be in mint condition. Changes as simple as adding new flooring and lights, re-painting the walls, and switching up the furniture aesthetic can justify considerable price increases despite the added costs. If the property is being rented out monthly, the costs are then covered through the monthly payments from rent.
At Stake, we recommend a standard holding period of 5 years reason being we want to maximize the returns our investors receive over their investment term! With every property we list, we provide a full breakdown of how much we think the property will be worth when it’s time to sell it. We’ve got you covered with all the numbers and figures you need to make an educated decision.
Speaking of rent, another core benefit of rental property investments is the predictable cash flow generated from monthly payments. Note that we refrained from using the word “consistent” because it’s inevitable that sometimes, a property may remain vacant for some time.
Still, who could pass up the possibility of having a second income, especially one that you don’t have to work for?
Hedge for Inflation
Why not end this article as we started? Like gold, real estate performs well and even better during inflationary periods. Let’s break down the three reasons why…
Rental income growth
During periods of inflation, rental income grows in tandem with prices, as costs associated with goods and services are passed on to tenants. This allows investors to sustain their returns over the inflationary period.
Investors can build long-term wealth through the value appreciation of their property as real estate prices generally follow an upward trend.
The intrinsic value of real estate
Real estate will always maintain its intrinsic value, relative to global population growth. As the population growth rate increases, so will the demand for real estate ownership or rental units.
What are you waiting for?
TL;DR | Real estate is a popular asset class that allows for diversifying an investor’s portfolio and gaining high returns in the long term. Here’s the basic rundown:
- It is the largest and most valuable asset class in the world
- It’s easier than ever to tap into real estate through accessible investment structures like fractional investing (hint, hint)
- Real estate investors can spread their risk across diverse property types
- Investors gain a strong sense of ownership and effectively build a passive “second” income stream
- Real estate is less volatile compared to other asset classes
- The asset class hedges against inflation as rental income grows in tandem with prices
- Value appreciation… enough said
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