Why invest in real estate? It’s a question I get asked a lot. Whether you’re are looking for a stable, regular cash income or to grow a nest egg for retirement, real estate is a great option.
As an experienced real estate investor, I should know.
Over the years, I’ve seen great returns from my many investments in European commercial and residential real estate – Austria and Germany in particular. So, here are my thoughts on why real estate is such a good investment choice.
Why invest in real estate?
Reason 1: Real estate offers good returns, for lower risks
In my experience, real estate usually delivers a good return over time, for relatively low levels of risk. Compared to stocks and shares, the returns from real estate might be lower – but so are the risks. In addition, stock values tend to be highly volatile, at least compared to the generally steadily rising value of real estate.
And, thanks to inflation, property investment almost always benefits those investors who hold on to their assets over the longer-term.
Reason 2: Real estate rates of return are steady and predictable
Everything is relative, of course, but real estate investment generally offers steady and predictable rates of return over time. If you’re prepared to be in it for the long haul, putting your money into real estate is a great strategy for steadily building up wealth.
In commercial real estate (where leases tend to be longer), landlords enjoy a steady flow of rental income. And, once the time comes to sell, the value of your property will almost certainly have risen naturally.
Reason 3: Real estate investment is a great way of making natural inflation work to your advantage
What is driving this steady accumulation of wealth that we see with real estate? Inflation.
Global inflation rates tend to be positive, rather than negative. Where living costs rise, rents follow, increasing your regular monthly income. And if banks then decide to push interest rates down to stimulate further borrowing, it’s another winning scenario for those of us who already own real estate. Lower rates mean lower repayments, and a chance to increase your monthly income further.
The bottom line is this: both house prices, and the cost of living in general, are heading up. Just take a market like Germany’s as an example, where house prices grew 4.6 % year on year in 2018. The previous quarter was even more impressive, with rises of 5.1 % year on year.
Reason 4: Property is an asset you can add value to
Sure, property can take a lot of management (and even further financial investment) to maintain and improve. This is where finding the right people to maintain the property and look after your tenants is so important. But one of the biggest attractions of real estate investment – at least for those who have the capital to spend – is the opportunity to add value yourself.
Reason 5: It is (relatively) easy to borrow to invest in real estate
Imagine trying to borrow capital to invest on the stock market. For the average investor, that’s a tricky proposition. Real estate, in contrast, is one area of investment where it is relatively easy for anyone to borrow to invest.
That initial capital outlay is substantial, for sure – but you’re still likely to be lent money to buy a property. Providing you have the means to pay it back, of course.
I want to make a final point too, for those of you with reservations about the size of the commitment that investing directly in real estate involves. One great alternative option is investing indirectly, via a real estate investment trust (REIT).
Investing in real estate in this way means you can buy and sell your shares in the REIT quickly, just like stocks and shares on the financial markets. It’s also a great way to have a diverse range of real estate investments, as REIT portfolios usually have properties in a range of sectors. So, it’s well worth considering.
The bottom line? If you’re able to raise the capital, and make the repayments, then real estate is as close to a sure thing as you get in investment circles.
Avner Motaev manages several companies in the real estate and telecommunications industries. He is the founder and CEO of mobile2business and lives and works in Vienna.