Why Is Real Estate a Good Investment?
Before I started writing about real estate, I was convinced that it was too risky an investment for me. I wasn’t comfortable with the idea of buying homes in the hopes of flipping them at a profit, nor did I like the idea of owning income properties and having to do the work of a landlord.
But then I realized that there’s a lot more to real estate investing than flipping and owning homes. And at this point, I’m convinced that real estate is a great investment, even for those who are first starting to build a portfolio.
So many choices
When you think about real estate investing in its classic form, you might conjure up images of renovating homes in disarray or building a portfolio of rental properties. But while those are options for breaking into real estate, they’re not your only choices.
In fact, many people investing in real estate by owning REITs, or real estate investment trusts. REITs are companies that own and operate different properties. And many REITs trade publicly, so you can buy and sell them the same way you would ordinary shares of stock.
The great thing about REITs is that they can be a nice source of stable income. That’s because REITs tend to pay higher-than-average dividends due to the way they’re structured. Plus, as is the case with stocks, REIT shares have the potential to gain value over time.
Now to get the most out of your REITs, you’ll need to do your research up front to land on quality businesses to invest in. You should also plan to hold your REIT shares for many years. But if you do, the financial upside could be huge.
Similarly, if you’re willing to be patient, owning income properties for many years could make you quite wealthy. Granted, you may need to do a lot more hands-on work as a landlord (unless you outsource that work to a property manager), but homes have a tendency to gain value as time goes on. And if you buy in the right market, you could end up doing quite well for yourself.
A good way to diversify
Investing in real estate is also a great way to branch out in your portfolio. When I first started buying REITs, I did so largely because I felt I was too heavily invested in tech stocks, but I wasn’t particularly drawn to another market segment.
These days, I own healthcare REITs, data center REITs, and infrastructure REITs, among others. And that’s allowed me to diversify nicely.
A solid long-term bet
Ultimately, investing in real estate could make you wealthy over time, especially if you double up by owning physical properties as well as REITs. And if you’re more of a hands-off investor like I am, stick to REITs. While REITs are by no means risk-free, they may better align with your comfort zone than income properties. And they’re a great way to help ensure that your investments stretch to different corners of the market.