Investing in real estate: is it a smart investment?

I am often asked the question “Is the real estate sector a smart investment?”

My answer to this question is yes, I believe in real estate investment (RE) as a long-term asset class. But no, I am not a fan of investing in individual real estate as an investment.

I want to make it clear; I am talking about buying real estate as an investment outside or in addition to hosting your home.




I know there are many people who may disagree with the opinions expressed here. Yes, there are exceptions to the general rule, and if you know what you are doing, you are an expert in speculation about ER and home repair, and you are comfortable with the risks inherent in owning real estate that can be successful when using energy Renewable to increase your wealth. But I would like to say that these people and attitudes are now an exception.

I always find it interesting to hear many stories about people who raised a lot of money in real estate rental, but they rarely have recurring disasters because people don’t talk about them frequently. Just as you always hear about how much the player earns, but rarely is the total amount of his losses.

One of the most important aspects of owning an individual investment property is to understand the numbers and present them as a business. If you are not sure of the net operating income of the property you are considering, you should not buy it.

These are the main reasons why I do not recommend direct investment in real estate:

1) It is one of the few investments that can cost you a lot of money and time.
Owning a real estate property as an investment may include costs such as: interest on the loan, closing costs, tenant search, the cost of months without tenants, the cost of additional insurance, the cost of repairs, maintenance of investment rates and real estate management, to name a few. A few. Many people do not consider all the costs of owning real estate.




2) It is a leveraged investment that increases risk.
Most people get a loan to buy an investment, be it a house, an apartment building or a land. They are investing their initial investment and are betting that the investment will be more valuable. Leverage increases both profits and losses. (This is excellent for the positive side and bad for the negative side). If the value of the real estate market decreases, you may not be able to sell the property as it was placed and you still need cash flow per month.

3) It is not a diversified investment.
Most real estate is an investment in a property in a specific location. Generally, you put a lot of eggs in a basket, which increases your risk of infection again. (Diversification is one of the most important investment investors. In my company, we are fans of low-cost investment funds and ETFs due to the inherent diversity of this type of stock).

4) It is a highly liquid and non-marketable asset.
Depending on the real estate market, selling the house can take a long time. Even during good markets, it usually takes more than two months to sell and close real estate. Anyone who owns a house through the buyer’s market, as it is now, can tell him his nightmare and frustrate him by having a house on the market for more than a year (or years).




How about holiday homes?
Even with regard to vacation homes, if you want the vacation home to enjoy your vacation home, do so if it makes sense to you. I see it differently to buy a second home as an investment. The enjoyment and pleasure you get when you get a vacation home compensates for the risks and costs of real estate. The main objective of a holiday home is to use and enjoy it, it differs from the property that was bought mainly as an investment. (Many times, renting a vacation home is cheaper and more convenient than renting a vacation home).

Real Estate Investment Trusts
If you believe and want to invest in real estate, I am in favor of real estate investment funds or real estate investment funds. Real estate investment trusts are a guarantee that is negotiated as shares and invests directly in real estate by owning a group of real estate and / or real estate loans. REITs allow you to own real estate as an investment in this class of assets with benefits:
1) Have an expert choose the properties
2) Without the hassle of costs and the commitment to maintain individual properties
3) Individual property risk intolerance due to lack of diversification (since many real estate and mortgages and / or locations may be owned by REIT)
4) Be a marketable asset that can be bought or sold quickly through a large stock exchange.
5) Real estate itself is a diversified investment




conclusion
Although I do not recommend buying individual real estate as an investment, real estate as a class of assets generally works to improve the diversification of your portfolio due to the low relationship with the public market. Therefore, I generally recommend assigning a small portion of your portfolio to this category, not as a market attraction in this sector (especially now), but based on my belief in our ability to mitigate the overall volatility of your portfolio in the long term. term.

Keep in mind that we are not fans of real estate investment funds at this time, especially commercial real estate investment trusts. We must be in the future as the economy improves and supplies decrease due to lower prices.

 

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