Why real estate is the best asset class

This is a guest post written by Mary Clare Bland. Mary is the editor of the Moving2Madrid blog, well known for assisting with international property and real estate projects. The views expressed in this article are not necessarily shared by Property Moose or DFI Financial Services.

Why real estate is the best asset class

When people think of investing, the first thing that comes to mind is usually the stock market. It’s exciting and features prominently in the news. However, it is not the largest asset class. What is? Real estate.

In 2016, investment in real estate equaled $7.4 quadrillion, compared with $65 trillion in the stock market. Many famous investors agree.

Quote #1 “90% of all millionaires became so through owning real estate.”- Andrew Carnegie

Quote #2 “Real estate investing, even on a very small scale, remains a trued and true means of building an individual’s cash flow and wealth.” – Robert Kiyosaki.

There are many reasons many professional investors prefer real estate. Here are my Top 7:

1—It provides for better diversification

I’m sure you’ve heard the saying, “Don’t put all your eggs in the same basket.” When professional investors talk about diversification, this is what they mean.

Until the global financial crisis of 2008, most experts believed in having stocks, bonds and other financial instruments in their portfolios. They thought that if one of these asset classes took a downturn, the others would remain strong. 2008 taught us that the financial markets are a lot more connected than anyone realized. When the structured loan market took a swan dive, stocks, currencies and almost everything else dropped in tandem. Yes, this was precipitated by US real estate prices falling, but this was only in certain markets. Real estate prices in places like New York City, and most other places around the world, either held strong or were quick to recover.

The beauty of real estate crowdfunding is that even the smallest investor can purchase shares in property all over the world. So, if your investment in San Francisco falls, it is likely your investment in Dubai will remain strong.

2—It has high returns

People think that historically, investing in the stock market has provided the strongest returns. However, this is not the case.

For example, the US stock market, as measured by the S&P 500 Index, had an average annual return of 10.31% from 1970-2016. The real estate market  had an average annual return of 11.42%.

The UK property market has performed even better, when compared with share prices. Between 1997 and 2016, UK property prices grew by 11.65% per year, on average. This is compared to the FTSE All Share index which delivered a 3.03% per annum return, on average, over the last 20 years (to the end of 2016).

3—It comes with side benefits

Tax benefits

In most countries, you get a tax break if you own your own home. For example, if you own your own home in the UK you don’t have to pay capital gains taxes when you sell it.

Other benefits

Because real estate is fixed, investing in it means you are also investing in the country in which it is located. For this reason, many countries such as Spain will give people that invest a certain amount of money (usually 500k€ but it varies) automatic residency, or even citizenship. To learn more about this, read Which European country offers the best Golden Visa?

4—It has a high tangible asset value

As lucrative as it can be, you simply can’t live inside a portfolio of stocks! When you invest in real estate, you can use it for many purposes. You can live in it, open a store or even plant crops on it.

5—It’s hard to steal

The latest investing craze, cryptocurrency, has grabbed center stage. Everyone wants to invest in it but most people forget there is a very high risk of your investment getting hacked, particularly if you haven’t done your homework.

The potential for theft is a factor for almost every other asset: cars can be driven away, jewelry can be placed in a pocket, paintings can be loaded into a truck. Real estate isn’t going anywhere.

6—It’s relatively easy to understand

Unlike the stock market, bonds, structured products or cryptocurrency, the mechanics of buying and selling real estate are relatively easy to understand. You don’t need a brokerage account, sophisticated financial or technical knowledge.

7—It generates rental income

This is the best thing about real estate- you can generate rental income. For example, if you invest £500,000 in a property in London, you can rent it on a long term basis, or even as an Airbnb. At the end of 20 years, assuming property prices increase the same amount as they have over the past twenty years (11.65%), your will realize a capital gain of £58,25o. This is in addition to the rental income you generate each month. Moreover, in the UK, you can get a tax deduction if you let your flat.

 

 

 

 

 

 

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Property Moose does not provide any advice in relation to investments and you must rely on your own due diligence before investing. Please remember that property prices can go down as well as up and that all figures, rates and yields are projections only and should not be relied on. If in doubt, please seek the advice of a financial adviser. Your capital is at risk if you invest. Property Moose is a trading name of DFI Financial Services Ltd which is an Appointed Representative of Resolution Compliance Limited which is authorised and regulated by the Financial Conduct Authority (no: 574048).