If there's one thing both investing and gambling have in common, it's that they involve risk-and lots of it. Imagine putting all your chips on one number, only for the roulette to fall on a different number. Investments work the same way; if you're not careful with your hard-earned cash, you'll see it all gone in an instant.
People looking for their first long-term investment have the highest risk, facing many questions and too many conflicting answers. They'd want to start with an investment that carries the least risk, something that won't break the bank even if things go south. Real estate is a good example, offering higher returns for lower stakes as time passes.
But why is real estate like that? More importantly, why should beginners consider getting into the real estate market before anything else? Below are several good reasons.
1. It's Real
For starters, the 'real' in 'real estate' is what it exactly says: existent and tangible. The earliest recorded use of this term dates back to the mid-17th century, referring to land and the house or building standing above it if any. Having something you can manage or modify any way you want has countless advantages.
For one, looking for a new home isn't the only reason for buying real estate. You can purchase property to rent it out, giving you a steady stream of income. The number of renters has grown over the past 50 years, from 21.3% of U.S. households in 1965 to 43.3% in 2016. The number of households renting out their homes has more or less stabilized since the 2008 recession.
It only gets better, as the slow reopening of the country from lockdown means restoring lost jobs. For instance, Arizona lost close to 300,000 jobs to the pandemic last year but has since recovered two-thirds of them. New jobs are fueling the improving situation of the real estate marketing in Arizona and other states.
2. It Promotes Due Diligence
The adage 'look before you leap' is frequently quoted for a reason; the unexpected fall can leave you gravely injured. It's no different in investing, be it real estate or something else. You have to fully understand the investment in question, from the amount you're willing to devote to options should the economy turn sour.
In the case of real estate, it carries as many cons as it has pros. You can't turn a house or building into fast cash as when selling stocks or shares. There's also the obligation to deal with repairs or renovations, especially when you're renting the space out. As such, aspiring investors should do their homework before getting into investing.
Whether with experts or on your own, exercising due diligence is crucial in a volatile economy. Even the act of looking for professionals like a qualified Arizona mortgage lender also requires scrutinizing all your options. The more research you perform, the more informed your decisions will be when push comes to shove.
3. It's a Great Way to Diversify
While it's impossible to eliminate risk, investors can mitigate it by diversifying their portfolios. Simply put, investment diversification does another popular saying justice: 'Don't put all your eggs in one basket.'
Diversification is a common practice in the stock market, where investors spread their money over several kinds of stock. That way, when one stock nosedives, they won't lose as much as when putting it all in that stock. Additionally, if the other stocks perform positively, they'll earn in the process.
Investing in real estate usually comes with a diverse package of real estate investment trusts and mutual funds, namely those that benefit infrastructure development. The latter is important since the U.S. has been plagued with infrastructure issues over the years, encouraging people to invest in this sector.
4. It Offers Tax Breaks
If past legislation is any indication, the U.S. is using tax breaks to urge people to invest in real estate. It motivates people to put their money on something that'll be worth a lot in the future. It's a win-win situation: investors get their money's worth while stimulating the economy. It's estimated that single investors can get as much as USD$ 250,000 in tax breaks, while those who are married can get twice as much.
Overall, investing in real estate is an excellent way to start building your portfolio. You can change it any way you want, learn a lot about the market, invest in other relevant sectors, and enjoy tax breaks. With enough experience in this market, you can safely aim higher.