When it comes to investing, it often pays to heed the advice of Warren Buffett and mimic his approach. After all, Buffett is one of the most successful -- and wealthy -- investors of our time.
But when it comes to investing in real estate, you may want to stray from the path Buffett has followed. He has made it clear that he's not a fan of investing in physical properties. But there are different benefits to owning income properties that you should know about. Here are three of them.
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1. Steady income
Some investors look to dividend stocks as a great source of steady, reliable income. But the right income property could achieve the same goal.
If you buy an income property in a market where rental demand is strong, you might have many years of stable monthly income to look forward. That's money you can use to offset your property ownership costs and put toward other investments.
2. Home price appreciation
Homes have a tendency to gain value over time. Now over the past few years, home prices have risen at an extremely rapid clip. That's not normal, and it's not a pattern you should anticipate if you get into the income property game.
In fact, owning an income property is a strategy that tends to work well for long-term investors, because you need to give physical real estate time to appreciate in value. But if you're willing to sit tight and retain an income property for many years, there's a good chance it will gain value in the long run.
3. Diversification
You may have an investment portfolio loaded with stocks and perhaps some bonds as well. But if you really want to diversify, owning physical real estate is a good way to do just that.
In fact, Buffett commonly recommends that everyday investors load up on broad market index funds. Part of the reason is that they take a lot of the guesswork out of investing. But they also lend to instant diversification. And so if you're ready to branch out in your portfolio, physical real estate could be a good bet.
Remember, too, that property values don't always rise and fall in line with stock market movement. Just look at the state of both the stock market and real estate market today. The former has been in a slump, and the latter is booming. That makes for a nice balance to your portfolio.
It's OK to do things differently
Since Buffett has enjoyed so much success, it's natural to want to follow his lead when it comes to investing. But actually, it's more than OK to stray from that path.
First, Buffett may have very different needs than you when it comes to generating steady income -- because he's so wealthy, he doesn't need to focus on investments that pay him monthly. You, on the other hand, might have certain cash flow requirements that income properties help support. And so if you're comfortable moving forward with income property investments, you shouldn't let the fact that Buffett avoids them influence your decision too heavily.
