Real Estate Investor Magazine South Africa November 2016 | Page 53

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Reasons Real Estate
is a Great Investment

A

Gallup survey published in July 2016 showed
that 35 percent of U.S. nationals favored real
estate as the best source of long-term income,
while 22 percent favored stocks, 17 percent preferred
gold and other commodities and the balance chose to
park their money in savings or fixed instruments. But
while the Gallup survey told us that real estate came
out on top, it didn’t tell us why. So why is real estate a
top investment option? !ere is no universal answer, but
here are four factors that impact the status of property
ownership as an investment.

DIVERSIFICATION

Diversification is a widely held principle related to
investing that, simply put, means that the best strategy
involves spreading your investment dollars across a
variety of different asset classes so that if one fails,
others will be less exposed to the factors that caused
that failure and will protect the portfolio. Talk to any
investment advisor, and diversification as a principle
will always come up as a tool that any investor—
large or small—should implement. Investors’ typical
attempts to diversify have been to spread their assets
across stocks, mutual funds and ETFs, bonds and
commodities so as to lower their exposure to one single
asset class. However, these assets are highly correlated
in their movements, lowering the effectiveness of
diversifying across these classes. Real estate has a
lower correlation with other asset classes like stocks
and bonds, making it a popular choice among
investors looking to diversify.
www.reimag.co.za

SAFETY

In today’s low-interest-rate environment, it is difficult
to use conventional methods to save your way to
finanancial independence, and while many do not
understand or have control over stocks and mutual
funds, they find investing in real estate to be one
of the safest and most immediately understandable
investments.

FAMILIARITY AND CONTROL

This asset class offers a daily familiarity and control
that most investors simply don’t have with stocks and
mutual funds. Invested wisely, real estate provides the
investor with immediate, positive cash flow and longterm home price appreciation. And while the asset
continues to perform, the positive cash flow provides
a good safety net against intermediate market
corrections.

LEVERAGE

One of the greatest attributes of investing in real estate
is that it is one of the last opportunities for people to
safely and securely make a substantially leveraged
investment. A qualified buyer will be able to put
anything between 3.5 percent and 25 percent down
and gain enormous leverage. And with every mortgage
payment, they are using the monthly rentals to pay
down their debt and simultaneously build equity. •

NOVEMBER 2016 SA Real Estate Investor

51