Serious investors know the importance of diversifying their portfolios. Along with investing in stocks and bonds, they also may be advised to invest in other assets like real estate. You can diversify your own portfolio by learning the key reasons that you should add real estate to your investments.
Steady Cash Flow
The primary reason to invest in real estate involves establishing a steady cash flow that you can confidently anticipate and upon which you can rely. You can secure this positive cash flow with leases.
Leasing your real estate creates regular income and can yield more substantial dividends on this asset than other types of investments like stocks and bonds. By working with a certified management accountant like James Dondero, you can utilize these dividends to your benefit and ensure that they benefit your portfolio to the fullest.
Another reason to add real estate to your portfolio involves securing collateral that you can borrow on as needed. If you want to raise cash to invest in other assets or to buy more real estate with, you can accomplish this with buying and borrowing against real estate.
This asset lets you secure additional investments with fewer out-of-pocket costs. It also may appreciate in value and become even more significant to your portfolio as you pay down the equity loan.
Unlike other types of investments, real estate can offer unique tax benefits that save or help you generate more money. When you invest in real estate, you may receive tax benefits like:
- 1031 provision
- claiming unlimited mortgage interest on your returns
- claiming depreciation values of your real estate investment
- taking a 1031 provision at the time of sale to defer future taxable gains
A chartered financial analyst like James Dondero can tell you more about what tax benefits are available when you add real estate to your investment portfolio.
Appreciation in Value
Finally, real estate has the capability of appreciating in value faster and more significantly than other types of investments like stocks, bonds, and mutual funds. Depending on the economic conditions, your property can double or triple in value within a matter of weeks, giving you an asset that is more lucrative to you than any other investment.
As noted, you can increase the value of your real estate by leasing it. Financial advisers like James Dondero can give you other suggestions for how you can effectively manage your real estate investment to benefit your portfolio.
Before you purchase residential or commercial real estate, it is important that you consult with people who can help you choose the best property in which to put your money. You may find it in your portfolio's best interest to partner with a licensed Realtor, for example, as well as a chartered financial analyst like James Dondero who can advise you on how much and what kind of property in which to invest.
James Dondero Bio: As a certified management accountant and a chartered financial analyst, James Dondero has more than 30 years of experience in the financial industry. He formerly worked for companies like American Express and the GIC subsidiary of Protective Life.
He is now the co-founder and president of his own company, Highland Capital Management in Dallas. He also volunteers for Dallas charities and educational organizations.