3 Reasons YouShould Be

Investing In RealEstate

After the economic recession of 2008,many people avoided investing in realestate. This was because this era wasoften linked with the housing bubble

and subprime mortgages. But thetruth is, real estate is a smart asset

class to invest in.

When you invest in real estate, youare purchasing a future income

stream from property. It is in realityquite unfair that real estate

investment is given a bad reputation.Here are a few reasons to invest in

real estate:

You can diversifyyour portfolio.

Investing in real estate can give youincredible potential to diversify your

portfolio. The correlation betweenreal estate and other major assetclasses is low, and in some cases,

negative.

The income returnis attractive and

stable.

One big upside to real estateinvestment is the sizeable proportionof total return, accruing from rentalincome over the long term. Between1977 and 2007, about 80 percent oftotal U.S. real estate return came

from income flows.

This leads to a decrease in volatility.Investments that rely more heavily onincome return have a tendency to be

less volatile than those that rely moreheavily on capital value return.

In addition, real estate is moreattractive than more traditional

sources of income return. The assetclass usually trades at a yield that is

premium to U.S. Treasuries. It isespecially attractive in an

environment with low Treasury rates.

It has competitiverisk-adjusted

returns

Data from the National Council of RealEstate Investment Fiduciaries

(NCREIF) shows that over the 10-yearperiod from 2000 to 2010, private

market commercial real estatereturned 8.4 percent on average. This

has a lot to do with low volatilityrelative to equities and bonds.

Many critics feel the the reason realestate has a low volatility is that real

estate transactions have not beenfrequent. As a result, property values

are often determined using third-party appraisals, which often cause

the market to lag.

As a result of infrequent transactionsand appraisals, there is a smoothing

of returns. In an upturn, reportedproperty values tend to

underestimate market values. In adownturn, they tend to overestimate

market values.

Real estate volatility should beadjusted upward, but real time

markets could undergo sudden shocksat any moment. One example of thisoccurred during the “Flash Crash” of

May 2010.

In just 15 minutes, $1 trillion in stockmarket value was erased. When

market volatility is an issue and thedynamics of algorithmic trading aremurky, real estate is an attractiveinvestment due to its more stable

pricing.

In just 15 minutes, $1 trillion in stockmarket value was erased. When

market volatility is an issue and thedynamics of algorithmic trading aremurky, real estate is an attractiveinvestment due to its more stable

pricing.