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3 Key Reasons to Invest in Real Estate – The Motley Fool

If you’re looking to either get started in investing or expand your portfolio, you may be wondering where to begin. From stocks and bonds to gold, crypto, and even the metaverse, the choices can be overwhelming. Maybe you’ve heard that many millionaires and billionaires earned their fortunes in real estate, but beyond that, you’re not sure what specifically is so great about it.

Let’s break down a few key reasons why real estate can be an excellent investment opportunity so you can decide whether you should add it to your portfolio.

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Image source: Getty Images.

1. It’s a terrific way to diversify

You probably know that diversifying your investments is critical. What you may not realize is just how many ways there are to invest in real estate. If your money is currently invested in other vehicles, adding real estate to the mix can be a great way to diversify. And you can have incredible diversity within your real estate portfolio, too.

One option is buying and leasing out long-term residential rental properties, vacation rentals, or commercial buildings. Or you might choose less traditional avenues like buying vacant land and either leasing it for farming or hunting or subdividing and selling it. You can also invest in the various commercial sectors — including multifamily, retail, industrial, offices, and healthcare — through real estate investment trusts (REITs). You can even buy real estate in the metaverse.

This is just a small sampling of the many options available to you as a real estate investor.

2. It’s a great way to earn passive income

Most people have plenty of responsibilities in life already. That’s why investments that can earn passive income are so attractive. With passive investing, once you’ve chosen your investment vehicles, done your research, and invested, you can keep making money with little further effort on your part.

As a rental property investor, you can hire a property manager to take care of everything from marketing, tenant screening, and collecting rent to handling turnover, maintenance, and repairs. You’ll still want to keep an eye on what’s going on in the market and with comparable properties so you’ll know if you should make any changes, like raising the rent or even selling, but this should take very little of your time.

You’ll also want to keep an eye on any REITs you own in case any new developments in either the way management is handling things or in the sector as a whole change how you feel about your investments.

3. The cost of entry can be quite low

Those who have yet to explore the world of real estate investing may assume you need to be able to afford to purchase a home or commercial building to participate. But while private REITs may have minimum investments of $1,000 or more, publicly traded REITs have no minimum investment. That means that with very little money, you can invest in a wide variety of commercial real estate sectors.

If you have a significant amount of money to work with — say, tens of thousands of dollars — but not enough to purchase a home or commercial building, you may be able to purchase a small plot of land. If you choose your location well, you may be able to develop and sell the land at a significant profit. You can read more about investing in vacant land here.

You may also be surprised to learn that you can buy an investment property with no money down. My colleague, Laura Agadoni, shares all the details in this piece.

Should you invest in real estate?

Inflation and rising interest rates are serious problems weighing heavily on investors’ minds right now. While you’ll need to crunch numbers on a case-by-case basis to determine whether a particular investment could work well for you in this climate, real estate as a whole continues to be an excellent investment. Here are some reasons why:

  • Vacation rental hosts brought in their highest annual average revenue ever last year at $56,000. And according to a recent AAA poll, 70% of Americans plan to travel at least as much this year as last despite rising gas prices and inflation.
  • Many REITs are actually poised to perform quite well during and sometimes even thanks to inflation, including those in the rental property and timberland sectors.
  • Homeownership is being pushed farther out of reach for many by high interest rates, low supply, and high prices. The resulting sky-high rents and low vacancies make this an excellent time to be a landlord.

If you like the idea of earning passive income with little money down while diversifying your portfolio, the right real estate investment can be an excellent choice — even now.



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