Buying and owning real estate is an investment strategy that can be both rewarding and profitable. Unlike stock and bond investors, prospective real estate owners can use leverage to purchase a property by paying a portion of the total cost upfront and then settling the balance, plus interest, over time. The main goal of my real estate portfolio is to be 100% financially independent, or to cover all my expenses without working, even taking into account future expenses. Investing in real estate is seen as the pinnacle of investment success by many new investors.
Unlike stocks and bonds, real estate can be touched and defended regardless of market conditions. When the market takes a downturn, you still have a piece of land that isn't going anywhere. For many investors, this is a kind of security that they can't find in other types of investments that may seem more abstract, even if they are backed by very real companies. A real estate investment trust (REIT) or a real estate company in which you don't play an active role are good examples.
The inflation-hedging capacity of real estate is derived from the positive relationship between gross domestic product (GDP) growth and demand for real estate. Compared to other types of real estate investments, REITs have the advantage of being highly liquid. As economies expand, demand for real estate increases rents and this, in turn, translates into higher capital values. There are several different ways to invest in real estate passively, including real estate investment trusts (REITs), crowdfunding opportunities, remote ownership, and real estate funds.
Unless you have a large amount of cash available, you will invest in these properties as part of an investment group. In theory, it's a safe way to invest in real estate, but groups can charge the kind of high fees that plague the mutual fund industry. REITs are very transparent and have to reveal a lot of information about their income and expenses, making them a great way for first-time real estate investors to add some real estate exposure to their portfolios. Macy's is a good example, as the retailer has a huge real estate portfolio, including its flagship location in Manhattan.
Only you can answer if committing to a real estate portfolio is a good use of your time and money, and whether it's worth taking money away from other goals to finance this effort. Real estate is a long-term investment, which means you can hold it for several years while you wait for it to appreciate. The right real estate investment strategy for you could be a combination of active and passive methods. That being said, this doesn't mean that you can't make money buying real estate and then renting the property for rental income.
The most speculative investors can invest in a family of real estate mutual funds, tactically outperforming certain types of properties or regions to maximize returns. You should also work with real estate agents and other professionals who can show historical numbers of appreciation for the communities you are targeting.