Why no investment portfolio is complete without rental properties

Why no investment portfolio is complete without rental properties

As investors look at the performance of their current investment portfolio, they may be missing a crucial piece of the pie if they are not putting their funds toward real estate. According to a survey by Gallup, 30 percent of Americans said real estate is the best type of investment for the long haul. The poll revealed more Americans believe real estate is a greater investment compared to gold (24 percent) and stocks and mutual funds (14 percent). This shows a rising trend that investors realize the financial impact real estate has on the strength of their portfolio and its viability for the future as the percentage of people believing real estate is a good investment ahead of other options steadily increased in recent years and was the leading choice for Americans since before the recession.

“This year, the housing market has been improving across the U.S., and home prices have recently been rising after a steep drop in 2007 during the subprime mortgage crisis,” the Gallup report said. “This current improvement in prices may be why more Americans now consider real estate the best option for long-term investments. In 2002, during the real estate boom that preceded the mortgage crisis and before gold was offered as an option in the question, half of Americans said real estate was the best investment choice.”

Here are a few reasons why no portfolio is complete with real estate:

Renting on the rise

One of the trends in the real estate market is the popularity of single-family homes as investment properties, according to market research firm PricewaterhouseCoopers. The study by PwC found that more investors are seeing that renting is on the rise among consumers after the recession.

“In what amounts to the institutionalization of the U.S. single-family rental housing market, private equity shops look to grow income by leasing to individuals who would have bought homes before the recession but are now delighted to be renters, having learned that “it’s a fallacy that paying rent is throwing away money” in the domestic context of servicing a mortgage, explains the fund manager,” PwC said in the report.

Importance of diversifying investments

Investors need to assess the risk their investments may pose as a downturn in the economy could send the values of these assets plummeting. To reduce the risk of investing, investors tend to choose to diversify their investments, whether they’re in stocks in bonds, shares in the energy sector or other forms of investments.

With their focus on diversifying their investments, investors could also look into real estate as an option to branch out into another growing segment of the economy. While other forms of investment all have their own risk, real estate might be considered less risky in parts of the country where the market is considered stable yet rising. Investors could leap into the market through low interest rate loans and property prices that are lower than the market average. With their investment options, investors could choose a real estate investment firm specializing in single-family rentals (SFRs) or real estate investment trust (REITs). Like SFRs, REITs have the potential to offer great returns. However, SFR investing may be provide more true diversification as they are not tied to the movements of the stock market like REITs are.

Home property values increasing

Demand for housing will always play a factor in the economic health of major metropolitan areas and other areas of the country. As local economies see improvements in job creation, investment and other signs of positive growth, demand for housing will likely go up and real estate investors need to recognize that they need to fill this hole in the market. Investors often view real estate as a good investment because as property values go up, the selling price or rental rate of their homes will also likely rise.

For more information on investment properties, contact HomeUnion®.

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