“The individual investor should act consistently as an investor and not as a speculator.” – Ben Graham
Are you interested in adding real estate to your investment portfolio? It is almost common knowledge that there is money to be made by buying properties and renting them out to pay for them. There are many advantages to investing in real estate that outweigh the costs by far.
However, the world is moving into the new normal. Consequently, it’s vital to follow the advice highlighted above by Ben Graham and not move from being an investor to a speculator who makes rash decisions to buy up cheap properties without formulating a solid plan to repay the mortgage loans.
The world as we know it: Setting the scene
Before we look at some of the merits of investing in real estate, let’s take a quick look at how the world’s economic environment has changed in the short-term.
The world’s population is currently living through a global pandemic caused by the novel coronavirus, COVID-19. It is incredibly contagious, spreads rapidly through person-to-person contact, and it causes a respiratory illness that is mild for most people but, on the other hand, results in death for others.
One of the only ways to slow the virus’s spread is social distancing or isolation. Therefore, over 50% of the world’s population is under varying degrees of lockdown or stay-at-home orders. All non-essential businesses have closed, and people are only allowed out to seek medical care and to buy essential goods like food. And, finally, companies that can pivot their operations to an online environment with their staff working remotely from home, have done so.
The global economy is in freefall. It is the first time in history that the entire economy has been shut down in one go. And, the question that concerns many experts is whether it is possible to reboot it so that life can return to what is now known as the new normal. Many country’s federal reserves have reduced interest rates in order to mitigate the financial devastation caused by the pandemic. The US Fed reduced interest rates by half a percent in March.
And, according to the World Economic Forum, a new report from McKinsey & Company has indicated that it could take up to three years for the US and EU economies to recover from the disastrous impact of COVID-19.
The advantages of buying real estate in a time of crisis
It is essential to note, that in every crisis there is an opportunity. The concept is similar to a set of scales that measure the weight of two objects in relation to each other. On the one side there is the crisis and on the other side there is the opportunity. It is up to each individual to balance the scales so that the crisis does not weigh more than the opportunity. The opportunity must weigh more than the crisis.
Consequently, as the real estate specialists at Movoto.com believe, now is the time to invest in real estate.
Succinctly stated, it’s a buyer’s market. The economic crisis is forcing house prices down. And, the cost of servicing a mortgage is less than it was in 2019 because the Fed has reduced the interest rate by 0.5%.
Therefore, let’s consider some of the benefits of adding real estate to your investment portfolio
Long-term investment protects wealth
Because the global stock markets are low and will either stay as they are for a while or drop even lower, investing in property is a way to protect your investments from losing value as quickly as they would if you had bought shares.
It must be emphasized at this juncture that buying property is a long-term investment. It is not a good idea to treat it as a short- to medium-term investment.
Income generation method
Even if you have to take out a mortgage to purchase a property, you will still earn an income that at least covers the monthly loan repayment rates by renting out the residential unit. And, your monthly income from the rentals will increase once the mortgage is paid off. Therefore, it is a good way to guarantee a monthly income from a passive investment.
Hedge against inflation and economic downturns
Real estate is a useful hedge against economic downturns and prevents devaluation when inflation increases.
Succinctly stated, when inflation goes up, your rental income and property value both increase exponentially. And, your property will not lose value in a financial depression such as the world is currently experiencing. The secret here is not to treat your real estate investments as short-term investments. If you sell them in a recession, you will more than likely lose money. They will not realize the same profits if you were to sell them in a time of economic prosperity.
Laila Azzahra is a professional writer and blogger that loves to write about technology, business, entertainment, science, and health.