330 ViewsOne of my favorite scenes from the 1965 classic A Charlie Brown Christmas depicts a young Lucy Van Pelt complaining that she never gets what she really wants for Christmas. When Charlie Brown asks her what that is, she replies, “Real estate.” She is a pretty wise kid. Certain types of investments are comparatively unstable. Take stocks. When compared side-by-side with real estate, stocks are considerably more volatile. Prices can go up one day and fall the next. And when the price of a given stock collapses, there is never a guarantee that it will recover. Real estate is different on so many levels. In terms of stability alone, very few investment opportunities can match it. Here are the top three things that make real estate so stable:
1. Ongoing DemandFor as long as human beings have roamed the Earth, the desire to own property has existed. It is natural for people to want to own homes, land, commercial properties, and so forth. That desire is never going to cease. Therefore, there will always be a demand for real estate. Take residential rental properties.. Furthermore, there will always be that segment of society that continues to rent for one reason or another. Because the demand will never dry up completely, residential rental properties remain stable even in times of economic downturn.
2. Value AppreciationOngoing demand creates stability for the investor. Likewise, stability leads to regular value appreciation. In the simplest possible terms, real estate values tend to climb over time. Price declines are never permanent. Many times, they are also short-lived. Salt Lake City’s Actium Partners offers short-term hard money loan options. A real estate investor willing to hold on to properties for many, many years stands to reap solid returns from higher resale prices. Even better, savvy investors know to buy up properties during tough economic times. They get them at below market prices and then turn them over for substantial profits once the market rebounds. We have seen this particular cycle time and again. Investors who bought up houses during the previous crash of 2008 are now holding on to properties that could be worth two or three times as much. You are lucky to see 10% on stocks. To earn 100% on a real estate deal is phenomenal.
3. A Double Value PropositionA third aspect of real estate that makes it extremely stable is its double value proposition. What does that mean? It means that investors derive value from their properties in two ways. The first we have already discussed: real estate prices that steadily climb over time. The second value proposition is related to rentals. The vast majority of real estate investors acquire properties in order to rent them out. This is true for both commercial and residential acquisitions. Just like property prices rise over time, so do rental rates. Every passing year brings a slight increase over the previous year. That means every year, properties generate more revenue. All the while, the actual price of the property increases. Investors make money via rent and, when it comes time to sell, a higher price than what they originally paid. These three things combine to make real estate a very stable investment. It is hard to lose money on real estate unless you make an egregious mistake – like buying a money pit. Investing according to sound principles minimizes risk and maximizes an investor’s ROI. It is no wonder so many investors insist on real estate being the best opportunity out there.