Question

How do you think real estate compares to other investments? What do you think investors are purchasing? Are they focusing on the anticipated returns, an inflation hedging tool or something as simple as diversification?

Answer 1

Investing in real estate is one of the oldest forms of investing. Predating modern stock markets, real estate is one of the five basic asset classes that every investor should seriously consider adding to his or her portfolio for the unique cash flow, liquidity, profitability, tax, and diversification benefits it offers.

The purest, simplest form of real estate investing is all about cash flow from rents rather than appreciation.For many investors, rental income from real estate investments has a huge psychological advantage over dividends and interest from investing in stocks and bonds.

Both investing in stocks and real estate have a role to play in your overall portfolio as our networth grows

A substantial percentage of real estate returns are generated due to the use of leverage. A real estate property is acquired with a percentage of equity, the remainder financed with debt. This results in higher returns on equity for the real estate investor.That's why the most conservative real estate investors insist upon a 50% debt-to-equity ratio or, in extreme cases, 100% equity capital structures, which can still produce good returns if the real estate assets have been selected wisely.

Hence few are focusing on the anticipated returns, an inflation hedging tool and few are considering it as simple as diversification