With interest rates near historic lows and a limited supply of quality properties to choose from, real estate remains a great area of investment for many Americans. And there is no sign that the housing market is going to shift trajectory anytime soon.
According to data from the National Association of Realtors, contract closings increased 4.4 percent in March, an annual rate of 5.71 million. Available properties dropped 6.6 percent from the same time last year to 1.83 million.
While a home is a big investment, multi-housing units and commercial real estate also present great investment opportunities. However, the money needed to get into the game may not be realistic for many retail investors.
Today, owning real estate for an investment offers a great way to diversify your portfolio from the usual stocks and bonds. It also can create an alternative form of income and may even lead to the growth of a scalable business. It does require capital, time and patience.
“Real estate investing is not for the faint of heart,” said Robert Dolan, owner of mortgage broker Capital Financial Group in Winnetka, Ill.
It is important for buyers to step into the game with their eyes wide open and research each potential investment before making a commitment. Even in homeownership, it is important to treat it like an investment and build equity in the home.
Investment-property mortgages also can be costlier overall because there are more risks involved, presenting a potential barrier for new investors. According to Dolan, lining up mortgage financing approval before locating a desired property will enhance your buyers bargaining position.
Real estate also can offer better returns than some other potential investments. With experts predicting a correction in the stock market looming on the horizon, low interest rates remains an attractive option.
Real Estate Investment Trusts, which are publicly-traded firms that own or finance income-producing real estate are another option for investment. They are modeled after mutual funds and have payed dividends to shareholders. They are a good option for diversification since a REIT is not tied to stock market performance. REITs feature unique risks relative to private equity real estate, including higher measured volatility, which must be weighed carefully.
Moreover, real estate investments also are a perfect hedge against inflation and there also are tax advantages to owning real estate.
Real estate investors can employ a number of strategies to minimize their tax. They also can take advantage of capital gains and rental income to tax-free property exchanges.
And over the course of time, investors have witnessed periods of high and low inflation, each time accompanied by factors that were unique to the period.
“Conditions in the real world do not exist in a vacuum,” Mitch Goldberg, president of investment advisory firm ClientFirst Strategy, told CNBC “In reality, the ‘inflation trade’ has never been this straightforward, simple formula.”
EDITOR’S NOTE: Readers should not view these tips as investment recommendations. You should consult a financial advisor prior to making any investment decisions.