News & Advice

Basic Reasons for Real Estate Investments:

January 28, 2020

Real estate investment means the purchasing of future income streams from the property as well as offering several advantages over other types of investments, including potentially higher return values, more stability, inflation hedging, and more diversification. Some of the main reasons to consider investing in real estate are as follows:

Adjusting the return according to the risk of the competition:

Arguably the low volatile characteristic of real estate is due to the result of infrequent real estate transactions and property values which are often defined by third-party approvals, resulting in a lagged market. The infrequent transactions and appraisals result in a soothing return, according to property values reported to underestimate market values in an upturn while for an overestimate market value in a downturn.

Highly Tangible value of the asset :

Unlike stocks or bonds, real estate investment is backed up by a high level of brick and mortar. This reduces the risk of principal-agent conflict or the extent up to which the investor’s interest is dependent on the integrity and competence of managers and debtors. REITs, generally listed as real estate securities also often have regulations that make it mandatory for a minimum percentage of profits to be paid out as a dividend.

Expect a stable and attractive income in the form of return :

One of the main features of real estate investment is the distinctive proportion of return accruing from rental over the long term. This, in turn, helps in reducing volatility as investments that require more on income return tend to be less volatile than the ones relying more on capital value returns.

Diversified Portfolio:

Another benefit of real estate investing is its diversified potential. It has a low as well as a negative correlation with other major asset classes which means adding a real estate to a portfolio of a diversified asset can lower volatility while providing a higher return per unit of risk.

 Limiting Inflation:

The limiting of inflation by real estate roots itself from the positive relationship between GDP growth with the real estate demands. With an expanding economy, the demands for real estate drive rents higher and thus translate into higher capital values. Real estate, thus tends to maintain the purchasing power of capital bypassing some of the inflation pressure on tenants and incorporating the rest in the form of capital appreciation.

Real estate is a separate asset class that can be understood in simpler terms as well as can enhance the risk and returns profile of an investor’s portfolio. Real estate offers competitive risk-adjusted returns, in response to less principal-agent conflict and attractive income streams as well as can also help in enhancing portfolio by lowering volatility through diversification.

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