A few years ago a wealthy friend of mine told me, “the richest people on the Forbes 500 are tech ceos at the top, big business owners in the middle, and at the bottom, real estate investors”. His message stuck with me. It humbled me and made me think about the long term strategy and hands off way of building wealth without all the mental gymnastics of the equities markets.
Real estate is a strong diversification asset to add to any portfolio, below I want to break down a few benefits and advantages of having an allocation of real estate within a portfolio.
Real Estate is a Hard Asset - there is always value in land and buildings. When public markets have issues, real estate is not correlated.
Leverage - Leverage allows you to borrow capital to increase returns on investment. This works to your advantages when prices rise. Use strategically.
Inflation Resistance - when we enter inflationary environments rents tend to go up, as well as home values. Increasing home values can lead to more renters. While expenses also go up, rents and good management can outpace.
Appreciation - Real estate tends to go up in value over time, but there is also “forced appreciation”. Forced appreciation is great because you can make repairs or upgrades, get better property managers, and reduce overall expenses at a property to drive NOI higher! This is not possible with crypto, stocks, bonds, or other assets.
Tax incentives - Tax laws allow real estate investors to depreciate an asset over time. You can receive positive cash flow while receiving a cash loss. You should check out Tom Wheelright's book “Tax Free Wealth” and learn more about tax incentives available across all areas.
These are just a few incredible benefits of real estate. At Growth Vue, we focus on Real Estate Syndication deals. Our Limited Partners (LP’s) get to experience these benefits without taking on an active investing role. Dealing with tenants can be challenging! Our investors enjoy the time they get back by putting their money to work passively in our apartment syndication deals.