Earn two types of return. One for today and one for tomorrow…
If you can afford to invest in real estate, any time is a good time. Timing the market is practically impossible. What do we mean by “timing the market”? Simply, waiting for the ideal and most opportune moment to make an investment. If there’s anything you can learn from the world’s best investors it’s that you can’t time the market. However, what you can do is protect yourself and your investments by investing in assets that generate regular streams of income. So why does it make sense to invest directly in real estate? Well, it really boils down to these three things.
Creates regular passive income
Many investors are attracted to real estate because of its simplicity as an investable asset class. Think about it, over 7.5 billion people call this planet home and all of them need a roof over their heads and a place to work. By owning a property, you are able to rent it out and start earning a secondary income right away. Compared to other assets, real estate provides regular dividends that investors can expect. In comparison, stocks may not always yield dividends and gold is usually held to negate the effects of inflation.
Increases your wealth
Investing in real estate, like many other investments is most beneficial when you have a long-term goal in mind. The wonderful thing about real estate is that it tends to increase in value over the long-term. At a later stage, your property may appreciate in value, thereby providing you greater returns when you choose to sell. Some academics investigated the return rate of various investable assets in 16 economies and found that residential real estate outperformed all other asset classes over a period of 145 years, returning an average of 7.05% a year.
Reduces risk and optimizes earnings
Adding direct real estate to your personal investments portfolio reduces your risk and may increase overall returns. This is because unlike other investment assets, direct real estate is not affected by the performance of other asset classes, such as bonds and stocks. Furthermore, even during periods where real estate may decrease in value, you still earn rental income.
Stocks/Bonds/Cash
Return:
8.11%
Standard Deviation:
10.92%
With 10% Direct Real Estate
Return:
8.22%
Standard Deviation:
10.22%
With 20% Direct Real Estate
Return:
8.33%
Standard Deviation:
9.52%
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Stocks
Bonds
Cash
Direct RE
You can think of standard deviation as the “volatility” in risk. A lower standard deviation means a lower risk profile
Real Estate
Consumer Durables
Corporate Equities
& Mutual Fund Shares
Pension Entitlements
Private Businesses
Other Assets
However, we also need to acknowledge that like other investment classes, real estate goes through cycles. Dubai has experienced two cycles in its short history,. Yet despite that, real estate generally tends to follow a positive trend (i.e., values increase over time) as seen below.
In case you were wondering, this applies to other major cities as well. Using London, UK as another example, we can easily verify that property values have appreciated over time. The key is to get in early and hold your investments for a few years so that you can realize capital gains.
