Talk to any financial adviser about where you should invest your nest egg, and he or she will give you one overriding piece of advice: diversify your investment! I have never heard an investment professional or financial consultant contradict such guidance.

What stockbrokers will suggest is that you spread out your investment portfolio into diverse assets such as bonds, international funds, large and small-cap stocks, etc. But what they typically overlook—perhaps because stockbrokers don’t make commissions on real property—is to include real estate in your investment holdings. So what are the benefits of investing in real estate as a part of your portfolio?

First, you will generally find that the real estate market is a lot less erratic than the stock market. I remember buying stock in one of the largest industrial giants in the world a few years ago—a so-called “widows & orphans” stock. I then got to see it go from $22 to under $10 a share over the next year. Just a couple of years ago, I bought BP stock—just a month before its Gulf oil rig blew up and then the global price of oil plummeted from $100 a barrel to below $30. Guess what happened to my investment?
I have never in my real estate career seen properly-researched investment property drop in value by 50% in a year.

Second, real estate offers you leverage. You can invest $25,000 in cash and buy a $100,000 property. Then your tenant actually buys the property for you by paying down your mortgage with the monthly rent payment. No matter how good the stock you might buy, nobody else is going to pay it off for you! And let’s say, hypothetically, that the property increases in value by 5% annually. In 5 years, the $100,000 property is worth $121,550. But remember: you only invested $25,000 and leveraged the balance. So you have just seen a rate of return of 87% on your investment.

Finally, there are tax benefits to owning real estate as an investment. You can depreciate the property; you can deduct the mortgage interest, property taxes, and most maintenance and repair expenses. And by hiring a company like SureWay–also a tax deductible expense–you have the peace of mind of knowing your property is being managed properly, the rent collected, and maintenance issues taken care of—without you having to be involved in late-night phone calls.

As always, you should consult a tax professional for your own situation, but call us here at SureWay Property Management for a no-obligation consultation of how real estate could play a valuable part in your diversified investment portfolio.