Why is Real Estate A Portfolio Must Have

Real estate has always been a promising sector and a melting pot of various investments such as real estate investment funds (REITs), REIT exchange-traded funds (REIT ETFs) and real estate mutual funds. There is always room for real estate and infrastructures for a functional and healthy economy. Nowadays, offshore real estate investments are also up for grabs. This dynamic and developing field will surely capture the eye of a prudent investor. Real estate investors realize that these investments allow efficient capital allocation and equitable diversification.

However, real estate is largely occupied by institutional investors such as pension funds, insurance companies and corporations. An ordinary investor will probably be taken aback by the huge amount of capital that real estate investments require. Real estate investments also require active management. But, do not fret! REITs, REIT ETFs and real estate mutual funds enable investors to enjoy management efficiency and capital allocation.

On The Road To Recovery

Forbes cited that the housing market will improve moderately in 2013. PwC suggests that lease, rent, and pricing of real estate will reap material gains and housing will begin to recover. As the real estate market begins to recover from the turmoil of the recent housing bubble, jobs in real estate will pick up and vacancies will be filled. Currently, the supply of houses exceeds the demand as families are opting to rent apartments. However, as the rent rises, families are expected to want to own their house. This year, the demand for housing might approach the supply and construction will pick up again.

Whether the news indicates a “down” or “recovering” market, there are solid reasons why there’s no such thing as a bad market when it comes to real estate. Let us break down the scenarios below.

It’s a Buyer’s Market

A real estate investor can take advantage of any market situation. Investors are invested in real estate because of the returns and not because they want to acquire it for their use. If the market says real estate prices are down, they buy; otherwise, they sell. Currently, there is an excess in supply of houses because people are not keen on the high cost of mortgage and housing. This is the perfect time to buy real estate investments. The high supply and low demand will push the prices down. That is the business of real estate!

Seller’s Market

On the other hand, a seller’s market capitalizes on high demand and low supply – which results to high prices. A location that has new infrastructures might trigger an increase in demand. Lookout for triggers like this. Malls and schools are common catalysts for the demand hype.

Returns

An ideal real estate investment is held for the long-term. On the long-term, these investments have return similar to bonds and equities. For starters, rental income is a stable cash flow stream. As the market recovers and the supply approaches the demand, rate of returns will stabilize. Real estate also has the ability to hedge inflation, shield tax, and spread risk.