Determining your financial goals can be an enlightening process, but it’s equally important to consider how you’ll achieve these goals in the first place. If you want to build wealth, you can’t just passively save your money and hope that you’ll eventually have enough to retire on—you need to invest in assets that will grow over time, like real estate. That may sound complicated, but real estate is actually one of the most straightforward investments around.
Before you dive in, however, here are five tips that will help make your investment successful and profitable:
Real Estate is an Asset Class
When thinking of an asset class to invest in, real estate is often overlooked. Yet, with its stability and low correlation to the stock market, real estate may be a great investment for those looking to diversify their portfolio.
Investors should know the three main types of real estate investments available: residential rental property; commercial rental property; and owner-occupied property.
It diversifies your portfolio
Diversifying your portfolio is crucial to not having all of your eggs in one basket. If you only invest in stocks, for example, when the stock market crashes, as it has many times before, you could lose everything. Investing in real estate can help avoid this risk. Real estate is also a good way to make money even if the market isn’t doing well because there are always tenants looking for apartments and homes to rent.
You can make money from it
One of the ways you can make money through real estate is with flipping, which is when you buy a property and renovate it to sell it at a higher price. Other options include buying the property for the purpose of renting or living in. If you’re looking to make money and don’t have any other way, consider investing in real estate.
It can be a hedge against inflation
Some people may think that real estate is a bubble, but the truth is that in this day and age, with inflation rates on the rise, having some physical property can be a good hedge against inflation. For example, you might have $1 million in stocks and bonds today that will be worth $1.5 million five years from now because of inflation.
It can be used as collateral
If you have a home with equity, then you can use your property as collateral for a loan. This is the most common way of securing a loan if the borrower has had steady employment and good credit. If the borrower doesn’t have any equity in their home, they may need to put up other assets (savings, stocks) as collateral in addition to paying higher interest rates on their loan.