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Five Reasons Why It's Smart to Invest in Real Estate

06/19/2012 05:24 EDT | Updated 08/19/2012 05:12 EDT
MLS

With the stock market turning into more of a roller coaster each day, people are looking to invest their hard earned money into something safer, with less volatility, but that still yields above average returns. Real estate is quickly becoming the investment of choice for many of these lost investors. If you aren't completely sold on the idea, here are five benefits to investing in real estate to help sway your decision:

Increase Its Value

One great benefit to owning real estate is that you are free to renovate, change, and improve the property. (Assuming you are following bylaws and regulations of course.) If these improvements are done right, you can increase the value of your asset significantly. If you are planning to renovate, make sure you use similar quality materials as the surrounding neighbourhood. If most homes have laminate flooring, it may not make sense to install hardwood. Don't forget, this is an investment and the goal is to maximize profit, not have the nicest home on the street.

Physical Investment

One of the best things about real estate is that you can get in your car and drive by your investment. You can show it off to your family and friends and talk to your neighbours about it. Other than a confirmation from your stock broker, there's nothing to show for an investment into the stock market.

Less Stressful

In the stock market, a rumour or speculation can send a share way up or way down depending on the news. How often are you online checking prices or calling your broker to find out what's going to happen with "X" company? Real estate is much less volatile. Sure, there may be a few deviations, but historically it's a much smoother ride to increased values and wealth.

Power of Leverage

This is best explained using an example: You purchase a home for $100,000 and put 20 per cent down or $20,000. If the value of that home goes up by 5 per cent in the first year, the property is now worth $105,000 or an increase of $5000. If you paid for the property in full, your profit would be 5 per cent. Since you only put down $20,000, your actual return is 25 per cent. ($5000 divided by $20,000 expressed as a percentage) That's the magic of leverage!

Providing A Place to Live

Often overlooked and undervalued, if the property is being rented out and is in good condition, you are helping out the tenant by providing a place to live that is warm, clean, and dry. Everybody needs a place to live and while a tenant may not be able to afford his/her own house, they still deserve to enjoy some of the same amenities that home owners do.

As with any investment, there are risks involved when investing in real estate, but if you do your research, are well informed of the facts, and have a good team around you, a lot of the potential risks can be mitigated. Make sure you perform your own thorough due diligence before placing your money anywhere and don't be afraid to make that leap into the world of real estate investing.