Years ago I was told you could not go wrong with real estate — that it was always a good longterm investment. Well, if you bought property in 2005, you know that’s not the case anymore. My question is, other than your home, is it wise to invest in property these days? Or, does it just depend on the property?
Over the long term, owning real estate has provided a steady return that is not just going to mirror the ups and downs of the stock market so it rounds out your overall holdings and make them less risky.
However, whether you should buy property generally depends on how much real estate you have vs. how much you should have. By real estate, we mean your home, plus any other property including rental, vacation or other. Ideally, real estate in total should represent about 25% of your total assets. When most people are younger, it is much higher than that percentage because their home is their largest asset. Over time, however, as you build up your retirement accounts and start an investment portfolio, the percentage of the total that is comprised of real estate will shrink. So whether you should buy property depends on whether adding that to your real estate holdings will keep you in a reasonable range relative to your other holdings.
As to which property and for what purposes, your efforts should be guided by a qualified real estate expert. In all cases, it is important that you have enough in reserve savings to be able to put a reasonable amount as a down payments, so that you do not borrow too much, and that you are able hold your real estate during tough markets so that you are not forced to take a loss when you don’t want to.
Here’s a related webcast we did on this topic:
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