Why You Should Integrate Real Estate Into Your Portfolio
kevinruss / Getty Images/iStockphoto

kevinruss / Getty Images/iStockphoto

If investing is only synonymous with stocks and bonds to you, you may be missing out on one of the best wealth building investments of all: real estate.

There are many ways to invest in real estate, from purchasing properties to rent out to investing in real estate syndications.

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Real estate experts Nathaniel Getzels, Realtor and founder of Getzels Group at Compass; Suzanne Moore, a real estate investor with the Central Oregon Investor Network; and Maria Simonetti, Realtor with The Simonetti Real Estate Team explain why you should begin to add real estate to your investment portfolio.

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It’s the Best Way To Build Generational Wealth

Getzels calls real estate “the best way to build generational wealth.” He said that’s why the majority of millionaires incorporate real estate into their portfolio and have at least some portion of their wealth in real estate.

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It Hedges Against Inflation

Getzels explained that real estate stands the test of time and economic instability. “Especially in a high inflation environment like today, the best way to protect your money is to take your liquid funds — your cash in the bank — and invest it into an asset that hedges inflation, so it’s protected and you’re not losing money in your sleep.”

Additionally, a lot of people find financial freedom through the cash flow that results from renting out properties.

“It’s a great way to generate passive income in a very strong asset,” Getzels said.

It Lets Others Service Your Debt

When you rent out a property that you own, for which you’ve taken out debt in the form of a mortgage loan, Getzels explained, “You have somebody else servicing your debt on an asset that’s protecting your money and increasing in value every day.”

In essence, he said, “It’s the best way to protect your money and potentially create short term cash flow, with which you could invest in more real estate, thus rinse and [repeat] the model every few years.”

Real Estate Is Tangible

Unlike money invested in the market, which changes in value — and for which there are tax penalties to extract it — Getzels said, “You know where [real estate] is, what it is, you can insure it, pull money out against it, and you can go touch it.”

Though real estate values may rise and fall, he said that land never depreciates, only the structures on it. “The core of your investment is safe and physically there in the ground.”

Midterm Rentals Are a Hidden Secret

If you own a property and want to rent it out but in a way that maximizes your income, Getzels explained that midterm rentals are a more lucrative way to do this.

People who travel for business often need between 30 days to 6 month rentals, he said. Because they’re over 30 days, there’s no government involvement, and because they’re still short term rentals, you can charge a better rate than if you were just renting to regular tenants.

“Most often people who are renting for 30 days to 6 months are often having their housing costs paid for by their companies, so they’re happy to pay more,” he said.

You Can Start Small

If you have enough money to pay rent each month, Getzels said you probably have enough money to invest in a property. You can start with a small loan, such as an FHA loan with a low down payment, and ideally purchase something with at least two units. That way, you can live in one and rent out the other — or others.

Real estate is also one of the most stable investments, he said, because “it’s insured, you can take money out against it as the value goes up, and [you] don’t have to put out a ton of money up front.”

When your property achieves enough equity, you can take out the money to purchase another property and keep going.

It’s the Only Asset You Can Buy With Other People’s Money

Moore said that real estate is an important investment, “because [it] is the only asset you can buy with someone else’s money and then have someone else pay it off for you.”

The best part, she said,  is you don’t need to have a lot of money to start out. “Real estate investing is accessible to anyone. Like anything in life, you’ll have to sacrifice something to get started.”

You Will Make Sacrifices… That Are Worth It

However, Moore explained that you’ll sacrifice one of three things when starting out: time, money or comfort.

“So, if you are short on time, but you’ve got some money in the bank, you can add a vacation rental or long-term rental to your portfolio to begin diversifying and a creating passive income stream, and start amassing equity. Buy and hold is a great entry point for people with money but little time,” she said.

If you’ve got a lot of time but are short on funds, she suggested you can use your time as a way to hustle and find deals. “Wholesaling is a great entry point for folks with time but not a lot of money.”

If you are somewhere in the middle, you can sacrifice comfort and do a live-in flip. “This is when you buy a run down home, live in it and fix it up for two years, and then sell and keep the profits 100% tax free, legally.”

Moore bought her first duplex in Portland, Oregon in 2014 when she was still a renter, paying someone else’s mortgage. “I did this strategically as a way to begin building passive income, so I could eventually leave my corporate job… and eventually help others do the same.”

Real Estate Offers a Variety of Investments

Real estate investments done right generate a secure financial base, according to Simonetti.

She has primarily invested in single family houses, which, she said, it’s possible to purchase with little to no money down, and she also has significant ownership in syndications, which are more capital intensive. “Both can generate monthly cash flow, appreciation and tax advantages.”

She explained, “One of my [single family] rentals was purchased with 3.5% down. Two recent others were purchased directly from the sellers and financed creatively.”

While these investments do require some active work, she said with good tenants and a system in place, they require little input.

Syndications, on the other hand, generally require a minimum of $50,000 to invest and may ask you to meet certain requirements to be an “accredited investor.”

While there are many companies out there, she said, “I’ve chosen mine based on the project and trust in the character of the managers. These are silent partnerships in which the business plan is laid out from the beginning.”

These produce some for their monthly cash flow and others for their appreciation and value add.

Takeaway

Whether you’re just getting started investing or have been at it for a while, consider real estate as a way to potentially generate passive income and increase your portfolio’s value.

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This article originally appeared on GOBankingRates.com: Experts Explain: Why You Should Integrate Real Estate Into Your Portfolio

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