Why You Shouldn’t Put All Your Money In Real Estate

There’s a reason why diversification is one of the best investment strategies till date. Here are some of the reasons why putting all your money in real estate is a bad idea.

One of the best and most popular investment vehicles today, is real estate. Real estate investing generally involves the purchase, ownership, management, rental and/or sale of real estate for profit. Without a doubt, we don’t need soothsayers to tell us that there’s a lot of money to be made from the industry.

There are tons of profits to be made regardless of the area of real estate you choose. Where you rent out your investment property, the rental income you gain is one of the best forms of income investing. Where you allow the value of certain properties appreciate, the profits from capital gains is also another pretty alluring option.

The truth that investing in property can be less volatile than shares is also great and the fact that unlike your shares which are almost abstract, you can see your real estate properties – even if you invest in a real estate mutual fund where pools of monies are used, you get to see what part of your money built.

Yet, in all these things, it is important to note that trying to invest all your funds in real estate is a huge risk you might never really be prepared for. It is not uncommon to hear people say things like “my father, grandfather, and great-grandfather were in the real estate business and I am in that too.”

There’s a reason why diversification is one of the best investment strategies till date. Here are some of the reasons why putting all your money in real estate is a bad idea.

Your Life Depends On The State Of The Real Estate Industry Or Property Market

This is pretty much the same result that comes with any one single class of investment. No matter how stable it seems, when things go bad, you could lose everything.

In the real estate market, interest rate increase will affect your return and affect your disposable income. When the market rises, good for you. If it goes down, it’s your loss.

It Requires Active Participation

Whether you like it or not, real estate is harder work than investing in stocks or bonds. Asides the actual work of setting things up, you also have to account for lawsuits, taxation, insurance, periodic maintenance and so on.

In other words, even though the income and growth structure works the same way stocks work as you invest for the purpose of income via dividends or capital growth, you have way more things to consider than market volatility.

It Is Highly Illiquid!

This is possibly the most important reason why you shouldn’t tie all your investments down in real estate. When the chips are down and you need to sell – especially where an emergency ensues, you might search for a buyer to no avail.

You simply cannot just sell off a section of it for quick cash as Real estate investments cannot easily be transferred to cash. It might not be an issue now; however when it does become one, you might be staring at your millions and not be able to do anything with it.

Stocks Grow Faster

Research has it that on an inflation-adjusted basis, the long-term growth in stock values has and will always beat real estate. Think of how fast some of the then growth companies like Facebook and Amazon took over the world.

If you had to choose between investing in one of those a decade ago and investing in real estate, the latter option will have left you at a loss.

It Can Cause You Problems

From problematic tenants, land grabbing issues by the government, litigation cases and more, real estate has often times proven that your greatest source of happiness can also be your greatest source of stress and pain.

Of course, none of these take away the amazing benefits that real estate has. However, as opposed to investing in just real estate, you might want to invest in a series of stocks across a diverse range of industries to curb your possible risks.

Written by Lawretta Egba.