In a volatile market, investing often sounds synonymous with gambling to many people. Many are hesitant of cryptocurrency, unsure of how to navigate the stock market, and not quite ready to put their money into an up and coming startup, no matter how promising the venture may appear. But one area where many ‘average’ people have seen success time and again is in real estate. Historians trace the modern conception of real estate back to the middle ages, and ever since explores entered Newfoundland, real estate has been a money-making machine.
But why is real estate a great way to invest even in tumultuous times? Moreover, why do the barriers to entry appear much smaller when entering into real estate investing as opposed to other types of investing?
Appreciate the Appreciation
Real estate properties grow in appreciation. A car loses money as soon as you drive it off the lot. And for every year you hold onto that car, the vehicle depreciates it. According to The Federal Housing Finance Agency (FHFA), homes have been appreciating at about 3 to 5 percent, with some high-growth areas appreciating a higher rate. Around 2008, home appreciation did slip, but prices returned to normal before long. It’s also important to keep in mind that the 2008 economic downturn that took place in the United States is not a regular occurrence, so housing depreciation is much less volatile than other forms of investing.
Some investors choose to focus on cash flow instead of appreciation. Cash flow is the amount of money your investments provide you with each month. This is also important when thinking about managing debt. Paying off one’s debt is good, but maintaining a steady income each month that offers the ability to pay down debt with the promise of continual cash flow is better. Real estate is a great way for people to maintain steady cash flow, not just a once and done payoff. The great thing about cash flow is you can receive a great return without it negatively impacting your principal investment – like a stock that’s dividend is so high you don’t have to worry about an increase in the stock value to make significant returns.
Also, there are some great options for real estate investing that appeal to many younger people. Many banks will allow someone to purchase a home as an owner occupant with no money down (considering specific loan requirements are met), and almost certainly someone who puts 5 percent down can purchase a property.
There are a lot of great real estate options out today. As single-family rentals continue to rise and multi-family properties continuing to boom, many claim the prime time for investing is now.