Have you saved enough for retirement? Although retirement experts often recommend that you save at least 10% of your income, this rule only applies to people in their 30s.
However, you can invest your money in order to have a safety net that can take you through your golden years.
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While there are several ways you can invest your savings, investing in real estate has several advantages over investing in bonds, mutual funds, or stocks. In fact, millionaires say it is the best investment anyone can make today, according to CNBC.
However, real estate investments are unique compared to other investments. Knowing the unique characteristics of this type of investment will help you to formulate a profitable strategy, and also avoid possible pitfalls in real estate investing.
Unique Characteristics of Real Estate
Durable
Real estate investments are durable and can help you build multi-generational wealth. Compared to other types of investments that have fixed maturities, real estate investments don’t have a fixed maturity.
Therefore, you can decide to sell your property after a few days in case you find a better opportunity, or you can hold onto it for several years. Many of the most profitable real estate pieces have been held for several decades.
Heterogeneity
In real estate investments, every property is unique in terms of physical structure, location, and financing. Therefore, you can leverage your local knowledge to acquire and manage a profitable real estate investment. Most successful investors work with agents for property buyers in their geographic area because of the diversity of real estate.
High startup costs
Just as the old adage goes, “you need money to make money,” you need a high amount of capital to start investing in real estate. In fact, real estate investing is among the most expensive types of investment.
Some of the typical costs involved in the buying process include purchasing, financing, closing, and rehabbing costs. However, the rewards are high, and they come in the form of high profits and cash flow.
The need for a high amount of capital for you to start investing in real estate is the main reason why it is profitable. Not everyone can afford to invest in this industry, and it limits the number of investors. Therefore, you can enjoy stable and long-term appreciation.
Illiquid
Real estate investment is often considered illiquid because of its inability to sell immediately without a substantial loss to the owner. Even for investors who buy fixer-upper properties or flip homes, it would still take them time to purchase, rehab, and find buyers. On the other hand, rental properties with tenants can take much longer to sell.
When it comes to investing in real estate, the lack of liquidity is a major benefit. This is mainly because illiquidity in the real estate industry makes it stable, and long-term investors can enjoy asset appreciation.
Immune to inflation
When you invest your money in real estate, it will remain safe even during inflation, which usually affects other conventional investments. This is mainly because real estate increases in value despite inflationary pressures, which explains why rental rates and property values go up during inflation.
For example, property owners increase monthly rents to compensate for inflation. This creates a cushion effect against losses from other investments that are affected by inflation.
No transparency
Most conventional types of investments, like stocks, bonds, and cash, are regulated in order to make them more transparent. This means that all people have access to real-time market information, and they can make changes whenever they want to. However, when it comes to real estate, the market works differently.
After you purchase a property, there is a potential risk that the seller may be withholding some information, or they are unaware of existing problems.
Therefore, you have to do your due diligence and inspect a property before you buy it. In case you decide to purchase a property from an unseen sight, like an auction, ensure that you take into consideration all facts before you make an offer.
Final Words
Now that you know the unique characteristics of real estate investments that make it profitable, it’s time to invest and make more money for your golden years. Learning how to invest in real estate is easier than other types of investments.
It’s also easier to finance, easy to improve your property, and it’s easy to use the tax advantages. At a time when conventional markets are becoming more complex, investing in real estate is looking better than ever before.
