Are real estate investments a wise and productive addition to a portfolio? It has certainly always been a very popular investment choice and it has numerous benefits. Let’s consider the basics of real estate, and see why it may be a good idea to include it in your investment strategy.

Why Invest in Real Estate?

Real estate can be an excellent investment for the right investor. If you choose properties carefully, you can enjoy predictable cash flow, potentially good returns on your investment when you sell, tax advantages and diversification. 

  • Cash flow: Real estate has the potential to be a long-term source of income. Even a mortgaged property can pay its own expenses, and even generate profits if it is managed well. 
  • Tax benefits: Real estate investors can take advantage of several tax deductions. The costs of owning, operating and managing a property can usually all be deducted, and the appreciation on a capital property is tax-advantaged when compared to other investment incomes.
  • Appreciation: If a property is well maintained, it can appreciate in value over time. They can thus demand higher rent, and be sold at higher prices.
  • Build equity: As you pay down your mortgage debt, you build equity, and your net worth will increase.
  • Leverage: one of the key attractions for investors is that lenders understand real estate and are comfortable providing leverage, secured against a property. This can be a major advantage when seeking credit in the future.
  • Portfolio diversification: Real estate is a great way to diversify your investment portfolio, meaning it can lower the overall volatility of your portfolio.

Different Ways to Invest in Real Estate

There are several different ways to invest in real estate, depending on what your investment goals are. These five ways include:

  • Rental properties: You can buy properties for the main purpose of earning income through rent. Provided you are prepared to handle the costs of upkeep and manage tenants, this can be very lucrative.
  • House flipping: Another method is to buy properties with the express purpose of improving them and then selling them at a profit. The trick is to purchase undervalued properties, boost their value and sell them as quickly as possible.
  • Real estate investment trusts (REITs): REITs are best for investors who want real estate in their portfolios but would prefer not to invest directly in properties. A REIT is created when a corporation uses investors’ money to buy and operate income properties. REITs are highly liquid because they are exchange-traded trusts.
  • Online real estate platforms: Real estate investing platforms facilitate investments in relatively large commercial and residential projects. This method is also known as real estate crowdfunding. These platforms pool resources from numerous investors, enabling them to invest in real estate with reduced risk and exposure.

What Is Direct vs. Indirect Real Estate Investment?

As you may have seen from the five different investment avenues described above, there are essentially two ways of investing in real estate. Direct investments involve buying, owning, and managing properties. Indirect real estate investment involves investing in pools of money – REITs, REIGs and online platforms, for example – which are then used to buy or build properties. 

Momentum Wealth of Aligned Capital Partners Inc. is a boutique wealth management firm based in Georgetown, ON. We are here to help our clients with their unique investment objectives and approaches. We provide excellent wealth management strategies for individuals and families. Contact us to find out more about our services and how we can help you with your real estate investments.