Real Estate: A Foundation Of Long-Term Portfolios

2 November 2015
 Categories: Real Estate, Blog


Real estate has been the foundation and expression of wealth for centuries. In fact, most historians tie growth in ownership of land as the root and creator of most multi-generational wealth and investment until the last two centuries.

In fact, some historians even point to George Washington as a man who became wealthy through the process of astute real estate investing. Although many Americans found themselves the victims of a real estate bubble, there is again an active participation in the industry of real estate investment both here and globally.

Why Real Estate is a Desirable Long-Term Investment

When it comes to real estate investing, as with most asset classes, it is important that one distinguish between highly-leveraged speculation and long-term investments. As the above-mentioned bust of 2006 clearly shows, the markets are subject to cycles that move up and down.

A downturn can create havoc for a real estate investor who does not have the cash flow to survive it. Additionally, some specific areas of real estate will fall out of favor and take time to recover. However, all properties, residential and commercial, have been shown to increase in value over the long-term.

The factors that make real estate such an excellent investment are many. Here are five of the most significant reasons many real estate investors include the asset in their portfolios:

  1. Leverage by using other people's money. Real estate is one of the most attractive asset classes for using sensible leverage. Investors can use a bank or other financial source to control substantial real estate holdings with relatively small amounts of capital.
  2. Tax-free growth in value and cash flow. One reason the use of leverage is so attractive to real estate investors is the increasing value of their real estate. This growth is compounded without paying current taxes and continues to lower the risk in the original debt incurred for a purchase. Properly planning the deductions and expenses of owning real estate will also often shelter the current income, as well as income from other sources.
  3. Inflation protection. In today's world of diversified investment portfolios, most experts recognize real estate as one of the best ways to protect a portfolio's purchasing power against the ravages of inflation.
  4. Financial planning flexibility. The unique features of real estate and the tax laws that govern its ownership and sale make it an ideal vehicle for deferring taxes, leveraging other assets, and deferring taxes. This is especially the case due to point two above, the accumulation of increased values without paying taxes.
  5. Forced retirement plan. Many smaller real estate investors benefit from the process of paying off their home and rental properties through a mortgage. The regular process of monthly payments for an appreciating asset provides the prospect of long-term security. Today, a substantial part of the future retirement nest egg for many Americans lies in their home equity rather than any other form of savings.

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