Invest your money in real estate
Real estate is probably one of the best investment options out there. Everyone who is serious about investing should include real estate in their portfolio in one way or another.
Investing in real estate might be intimidating at first, but once you understand all the upsides of investing in real estate it’s just impossible not to see it as a very attractive investment option.
There are many ways to get involved in real estate, from buying your own home to renting properties or flipping them (which is actually more of a business than an investment).
As an investment, real estate probably has on of the best, if not the best, risk/return ration you’ll find.
The beauty of hard assets
Real estate is what’s known in financial terms as a “hard asset”. A hard asset is an asset that that actually exists in the physical world. In other words, something you can touch.
This might sound obvious, but there are many investments which aren’t hard assets. Just consider stock investment or investing in peer-to-peer loans to name a few. None of them are hard assets, they don’t exist in the physical world, they are little more than a number on a screen. Those are known as “soft assets”.
The risk of soft assets is that there is always the possibility that they might disappear altogether. The person who you loaned money to might not be able to pay the loan back, or the company that you bought stock from might go into bankruptcy and shut down. In both scenarios your investment would be lost.
With hard assets this is scenario is virtually impossible. Unless a bomb brings the building down, you’ll always own the bricks you’ve bought. The market might take a hit and go down, but the bricks will still be yours, and they will always have some value.
Real estate will appreciate over time
One of the ways you’ll be making money if you invest in real estate is by the appreciation of your property over time.
This basically means that if you buy a property today and sell it 10 years from now, you’ll most likely be able to sell it for more than you bought it for.
On top of that, real estate has a proven track records of beating inflation over time. This means that even though prices in general will go up every year (historically 3.2% for the last hundred years in the US) property values have gone up by more than that.
Real estate will generate passive income
Property appreciation is not the only way real estate will make you money though. Unless you are using the property yourself, you’ll be renting it out and collecting a paycheck from your tenant every month.
Some part of that paycheck will go towards paying property taxes, property management and occasional repairs, but you should still be left with a nice amount of passive income every month.
You might be thinking that some stocks will also pay you dividends on a regular basis. That is true, dividends can also be a source of passive income. However, with stocks dividends will usually yield you very small returns, the real bet there is that the stock will appreciate over time and you’ll be able to sell it for more than you bought it. With real estate on the other hand this monthly recurrent revenue could be the business on its own. Even if your property didn’t appreciate over time, collecting a monthly rent would still make it an attractive investment.
How much money can you make investing in real estate?
There’s a non-written rule that says that there are only 3 keys to real estate; location, location and location.
Location will also be the key that will determine how much money you’ll be able to make on your real estate investment. When it comes to real estate, buying a property in a major city like New York, London or Paris is not the same as buying in a rural area, or even a smaller secondary city. But the city is not the end of it, where in the city you buy will also be important. It’s not the same to own property on New York’s 5th avenue than on avenue D avenue, even if both are located in Manhattan. So again, it’s all about location.
That being said, even the less lucrative real estate investments should be earning you 5% to 7% annually from collecting rent and appreciate by no less than 4% to 5% every year. So combined, a real estate investment should earn you at least 9% per year when you add up rent and property appreciation.
On the higher end, prime locations, specially in retail, have the potential to earn much more than that. Think double or triple, or even more in the case of very unique properties.