Why You Should Diversify Your Investment Portfolio With Real Estate

June 4th, 2019

Every investment advisor will tell you that diversification is of the utmost importance in your investment portfolio. Diversification helps you to reduce risk exposure, maximize gains in any economic climate and minimize losses. No matter how much you have to invest, it’s wise to spread it out among a variety of asset types. What financial advisors sometimes forget to mention is that real estate is one of the most stable and reliable ways to diversify. Real estate investments may not pay commissions to your broker like stocks and mutual funds do, but they can pay off big in your investment portfolio.


Real Estate is a Smart Hedge Against Inflation


The current inflation rate is 2%, which is better than the 3% we’ve seen in previous years. Still, inflation is always something to worry about, since it means your money doesn’t go as far as it used to. When you put your money in the stock market or other exchanges, it’s spent. From that moment on, you have to hope that your picks will outpace the rate of inflation.


Real estate—and in particular turnkey rentals—are a smart hedge against inflation. When you buy and hold real estate, you can almost be guaranteed of a few things: 1) your property is likely to appreciate in value over time; 2) whenever the local economy improves you can raise the rent, thereby increasing your cash flow; 3) if you decide to sell when the market’s high, you can realize gains that match current market conditions; and 4) when your property increases in value you can do a cash out refinance for the equity.


You Have More Control With Real Estate


Stock prices can dip or rise based on the news of the day. If a CEO makes headlines for bad behavior, you can count on your stock in that company losing value. If civil war breaks out in a tiny corner of South America, your currency holdings will react accordingly. There’s no control over your portfolio apart from the moment you buy or sell.


When you buy rental properties, you have all the control. You control where you buy and how much you pay, but you also have control over any upgrades you want to do, which property manager to use, how much you charge for rent, when to spend money on repairs, when to hold off, and everything related to your property. Rental property ownership is perfect for anyone who is tired of having the entirety of their portfolio being at the mercy of faceless corporations on the stock exchanges.


Real Estate Is Less Volatile Than Other Investments


Stocks, commodities, currency and similar investments carry inherent volatility. Prices rise and fall by the second, and the value of your portfolio is inextricably tied to the whims of the market makers. When you wake up your net worth is one amount, and by midday it’s something else. Whether you’re invested in Microsoft, Exxon, gold or pork bellies, the volatility is inescapable. Many people liken investing in the stock market to gambling due to its unpredictable highs and lows.


When you choose to buy and hold, real estate can provide you with steady, long-term returns. With a turnkey rental investment, it’s possible to have a rock solid, reliable source of income that is almost guaranteed to perform the way you expect it to. And, since everything with real estate happens on a slower basis, you’ll always have plenty of time to plan your next moves ahead of time, rather than feel pressured to make fevered decisions about your stock buys and sells.


The Real Estate Market is Regional


The real estate market is subject to fluctuations just like any other investment market. The notable difference is that the real estate market is regional. Depending on where you look, real estate prices may be increasing, decreasing or plateauing. The market can vary dramatically among states, cities and even neighborhoods. One city, such as San Francisco, might be out of reach for someone with just a few thousand to invest; while another metro area, like Memphis, is highly affordable. With real estate, there’s always room to jump on the real estate ladder someplace.


Offset Taxes With Real Estate


Any profits you make by selling stock or from receiving dividends are usually subject to capital gains tax unless you’re operating out of a qualified retirement fund. Even then, your taxes may only be deferred. There are no tax benefits to trading stocks and similar investments like currency or commodities.


Real estate investments come with a bevy of tax write-offs that you can use to offset the taxes you owe from your stock gains. If you own investment real estate, such as turnkey rentals, you can write off almost all your related expenses, including property management fees, interest expenses, repairs and maintenance, travel to check on your property, marketing and more. You can also deduct the depreciation on your real estate investment, further offsetting those stock gains.


Are you ready to step up your game with real estate? A turnkey rental in Memphis, Cleveland, Birmingham or St. Louis can round out your investment portfolio and give you the financial security you and your family crave. Stocks and similar investments certainly have their place, but if you aren’t investing in real estate you’re missing out on something truly valuable for your portfolio. Please contact MartelTurnkey today to have all your questions answered.




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