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5 Key Reasons to Invest in Real Estate

5 Key Reasons to Invest in Real Estate

Real estate investing offers a secure alternative to the stock market and has been proven over time to provide higher returns than the S&P 500 when inflation is factored into the equation. Still, not every investor wants to be a hands-on property manager, and many don’t know how to invest in real estate using money in their 401k or IRA account, which can offer secure ongoing tax-free income for retirement.

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"The benefits of diversifying via real estate can include leveraging a bank’s money to buy property, tax deductions, and appreciation", Forbes writes. "The main reason to own real estate is the steady cash flow".

Why You Should Consider Real Estate

Here are five key reasons to invest in real estate that explain why this is a smart strategy for a secure retirement and a strong, well diversified financial portfolio.

Use the table of contents below to navigate through the blog:

  1. Income Property Equals Financial Security
  2. Appreciation
  3. The Value of the Properties Increase Over Time
  4. Investing in Real Estate is Equal to Portfolio Diversification
  5. Wealth Creation is Key to Secure Retirement


Income Property Equals Financial Security

Income Property Equals Financial Security

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An “income property” is simply a piece of real estate that is purchased and developed with the intent to earn ongoing income through rentals, appreciation and/or leasing the property. Investors can also benefit from adding an income property to their portfolio by purchasing shares of a real estate investment fund. This option is attractive if you’re looking for passive income, and it also gives average individuals a chance to own a stake in valuable, large-scale investment properties that are typically only available to the wealthiest individuals and financial institutions. An income property is also a good investment because it offers the financial security of owning real property with a wide variety of options to suit all types of investors.

"Real estate can be an excellent long-term investment that can provide a source of income in retirement", writes Investopedia.


Real Estate Investing has Averaged More than 6.74% Appreciation

Appreciation

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According to the National Association of Realtors  (NAR) and Entrepreneur.com, real estate investing has averaged more than 6.74 percent appreciation annually over the last 50 years. This ROI outperforms the S&P 500 and most other popular Wall Street investments, virtually guaranteeing that a property’s appreciation value will benefit you financially in the long run.

"Appreciation is one of the key benefits in your ROI", Entrepreneur.com adds.



The Value of the Properties Increase Over Time

The Value of the Properties Increase Over Time

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To put this quite simply, the value of properties typically goes up over time because land is in limited supply… After all, no one is producing more of it! As a result, while the population keeps growing the demand for land drives the price of property up over time. Therefore, the natural appreciation of the land itself can offset the depreciation of any structures built upon it, which always require capital infusion from time to time in order to retain their value.


Investing in Real Estate is Equal to Portfolio Diversification

Investing in Real Estate is Equal to Portfolio Diversification

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Real estate is a significant yet often overlooked element of financial asset allocation that should form a part of any institutional or personal investment portfolio. A popular option for risk-averse investors, real estate offers protection during bear markets and can even provide secure, ongoing tax-free income for retirement. Real estate investments can be in the form of individual properties, or can be bundled into passive investment vehicles like mutual funds and real estate investment trusts that target particular sectors or development projects.

"The total amount usually recommended for real estate allocations is about 25 percent", advises Investopedia. "Real estate investment can play a vital role in optimizing [financial] portfolios".


Wealth Creation is Key to Secure Retirement

Wealth Creation is Key to Secure Retirement

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Generally speaking, a strong financial plan involves both wealth creation and wealth preservation, and the same holds true for a secure retirement. To have a comfortable, secure and - perhaps most importantly - enjoyable retirement, you first have to build a financial nest egg that will fund it, then you have to preserve some of that and make it grow. Real estate is one of the safest ways to preserve and grow your wealth, since property values tend to naturally increase over time (therefore preserving the initial investment) and - when you invest smart and don’t overextend yourself - the annual ROI from rentals, reservations or leasing agreements provides steady ongoing income, regardless of outside market forces.

In conclusion, you can think of real estate investing as the purchase of a future income stream that offers a variety of advantages you just can’t find in other investments. This includes financial stability and potentially higher returns, a hedge against inflation and - when you invest using money in your IRA account or 401k - real estate can even provide secure, ongoing tax-free income for retirement.


If you are not a beginner, this might interest you.

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