Investing in real estate may not be the simplest way to make money. After all, if your goal is to grow wealth without having to do much work, you could always buy some broad market index funds and call it a day.
But investing in real estate can not only be rewarding but also your ticket to achieving your long-term financial goals. Here are just a few reasons to consider putting money into real estate.
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1. You want portfolio diversification
A diverse portfolio can benefit you in a couple of ways. First, by branching out, you'll give yourself more opportunities to make money. Furthermore, a diverse investment mix could be your ticket to getting through volatile periods, like recessions, relatively unscathed.
If your portfolio consists of stocks and bonds at present, it may be time to consider expanding into real estate. That doesn't necessarily have to mean going out and buying property, though. If you don't have the stomach for that, you could turn to REITs, or real estate investment trusts.
Many REITs trade publicly, so it's easy to track their share price. And if you're used to buying or selling stocks, it's effectively the same process.
2. You want stability
Home values have a tendency to rise over time. Usually, home price gains are slow and steady, as opposed to the drastic gains we've seen over the past couple of years. But if your goal is to invest your money in an asset with a history of appreciating in value, residential properties are a particularly good bet.
3. You love steady, predictable income
Some investors need their portfolios to continuously generate income for them to be able to sleep at night. If you're one of them, real estate may be a great fit.
If you buy a rental property in a solid market, you might have little trouble keeping it occupied with tenants. The result? Monthly rental income you can use to reinvest or cover your personal expenses with.
Similarly, if you load your portfolio with REITs, you can expect steady income in the form of dividend payments. REITs are required to pay at least 90% of their taxable income to shareholders as dividends. Because of this, REITs commonly offer higher dividend yields than your typical stock. That's money you can not only anticipate but put to work.
Could investing in real estate help you meet your goals?
As an investor, you certainly have your share of choices. You could go heavy on individual stocks, fill your portfolio with exchange-traded funds (ETFs), or stick with bonds if you're particularly risk averse. But it pays to consider the many benefits of putting money into real estate -- even if it's a road you've never contemplated before.
Dabbling in real estate could be your ticket to retiring early or setting your children up with a healthy financial cushion as they approach adulthood. And so you may want to give real estate investing a go, whether that means buying income properties or purchasing REIT shares for the first time.
