Why Is Real Estate a Good Investment?

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You’ll often hear that investing your money in stocks is the ticket to growing long-term wealth. But you actually have a lot more options than that.

One option, in fact, is to invest in real estate. Here are just a few things that make real estate a solid investment choice.

1. It’s a great means of diversification

Branching out in your portfolio could help you make a lot of money over time. But that doesn’t just mean buying stocks across a variety of industries. It could also mean dabbling in real estate.

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If you put, say, 65% of your assets into the stock market and 35% into the real estate market, you might minimize your losses if the former crashes or experiences a prolonged period of volatility. That’s because the real estate market doesn’t always follow the same patterns as the stock market.

In fact, let’s think back to March 2020, when stock values plunged in the wake of the COVID-19 outbreak. Home values didn’t follow suit. If anything, they’ve been soaring since the start of the outbreak.

Granted, the stock market crash of 2020 wound up being short-lived. But even now, the stock market is seeing its share of volatility, while real estate values have largely held steady throughout the past few months of turbulence — and that’s with mortgage rates rising at a rapid clip.

The point is that putting some of your money into real estate could serve as a means of financial protection.

2. Home values have a tendency to rise

Investing in properties isn’t without risk. But one thing that might ease your mind as an investor is that home values do have a tendency to rise over time.

According to Black Knight, annual home price growth has seen a 25-year average of 3.9% — and that figure doesn’t account for recent explosive growth in the housing market.

Now that isn’t to say that home values won’t dip temporarily during periods of broad economic distress. But if you buy a home today as an investment property and hold it for 20 years, there’s a strong chance it will be worth a lot more money in two decades’ time.

3. You can invest in real estate without owning properties

When you buy actual properties, you assume the costs associated with maintaining them. Those include repairs, property taxes (which could rise over time), and insurance.

But the great thing about investing in real estate is that you don’t have to actually own properties to do so. Instead, you could simply invest in companies that own and operate different properties.

Those companies are known as REITs, or real estate investment trusts, and what makes them a particularly compelling buy is that they offer investors dual opportunities to make money. First, there’s share price appreciation. If you choose the right REITs, you may find that their shares gain value if you hold them for many years.

Then there are dividends to consider. REITs are required to pay out at least 90% of their taxable income as dividends. As such, they tend to offer higher dividends than your typical stock. That’s money that you can reinvest to build out your portfolio.

There are plenty of paths you can take on the road to making money. But it pays to consider getting into real estate if it hasn’t crossed your radar. While it’s not a risk-free endeavor, there are certainly a lot of upsides to consider.

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Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.