Disclaimer: Due to the nature of the topic, the information presented should not be considered financial or legal advice. It would be best to discuss your unique scenario with an attorney and accountant to discover the direct impact of an investment.
Adding real estate to your portfolio introduces a different income source not directly tied to stock dividends or bond interest payments. Real estate values often move independently of stock and bond markets, providing a non-correlated asset class that can balance portfolio risk. Investing in real estate can expose your portfolio to different economic sectors and geographic areas, further enhancing diversification. You can achieve a more balanced, resilient, and potentially more profitable portfolio by spreading investments across various asset classes, including real estate.
Risk Mitigation
Real estate often shows lower volatility compared to equities and other asset classes. Property values are more stable and less susceptible to daily market fluctuations. Further, real estate can act as a hedge against inflation, as property values and rental incomes often increase with inflation.
Income + Capital Appreciation
Rental properties can provide a steady income stream through rental payments, which can be particularly beneficial for investors seeking regular income. Real estate properties have the potential for long-term appreciation in value, which can contribute to overall portfolio growth. Investors can use financing to acquire properties, potentially amplifying returns through leverage while benefiting from property appreciation.
Tax Benefits
Real estate investors can benefit from various tax deductions, including mortgage interest, property depreciation, and maintenance expenses. U.S. investors can defer capital gains taxes on real estate sales by reinvesting proceeds in similar properties through a 1031 exchange.
Wealth Building
Real estate can be passed down through generations, providing a means to build and transfer wealth over time. Mortgage payments on investment properties act as a form of forced savings, gradually building equity over time.
Active vs Passive Investment
The choice between active and passive real estate investment depends on your preferences, expertise, time availability, and investment goals. Active investing offers more control and potentially higher returns but requires significant effort and expertise. Passive investing provides a more hands-off approach with professional management, suitable for those seeking diversification and stable returns without direct involvement. Coastal Agency advisors can help you understand the different characteristics of an active investment of a physical asset versus a passive approach through a pooled investment vehicle managed by professional partners.