Here's why real estate is (still) a great investment

There is a lot of competition for investors' attention these days thanks to the dynamic and ever-evolving landscape of investment opportunities, especially in innovative technology companies and other startups offering disruptive solutions and large potential returns.

"Fields like artificial intelligence, blockchain, renewable energy and biotechnology, for example, have really captured the imagination of investors in recent years," notes Gerhard Kotzé, CEO of the RealNet property group, "and in our interconnected world where information travels so rapidly, they can find themselves inundated with a multitude of options all vying for their capital.

"The proliferation of crowdfunding platforms, peer-to-peer lending and cryptocurrencies and other digital assets has further expanded the investment universe and provided even more potential alternatives to traditional options such as stocks, bonds and real estate.

"However, it has also been of huge benefit to investors by demonstrating the need to provide more and better information across the board to help them make informed comparisons and choices. Everyone who wants investors to notice them has had to up their game, and communication in every sector has become more effective and transparent as a result."

And this, he says, is now helping an increasing number of investors around the world to rediscover the attractions and advantages of those more conventional investment avenues, and the motivations for investing in real estate in particular. These include the following:

*The potential for long-term appreciation. Homes and other properties have historically always appreciated in value over time, especially in high-demand areas. Investors who buy a property at a favorable price and hold on to it stand to benefit from this capital growth by selling the property at a higher price in the future.

*Cash flow and passive income. "Real estate investments can generate regular cash flow and provide a passive income stream," says Kotzé. "It is possible for correctly selected rental properties, for example, to generate a monthly income that exceeds the expenses associated with the ownership of those properties, such as bond repayments, maintenance costs and taxes. This excess can provide investors with a consistent flow of passive income."

*Portfolio diversification. "Real estate has a low correlation with other asset classes like stocks and bonds, so by diversifying into real estate, investors can potentially reduce the overall risk of their investment portfolio and protect it against market volatility."

*Hedge against inflation. Real estate investments are often considered a hedge against inflation, which can prompt an increase in rentals and in property values over time. "As the cost of living rises, it becomes more difficult for people to qualify for home loans, so both the demand for rental units and rentals themselves tend to increase, and this enables investors to maintain their income streams," he notes.

*Tax advantages. "Rental property investments often offer tax advantages that can help investors maximize their returns. In SA, these include deductions for the interest paid on a bond, insurance premiums, sectional title levies, property management fees and some of the expenses related to maintenance."

*Direct control. Kotzé says that one of the most attractive aspects of real estate for many investors is that it is a tangible or 'real life' investment that they can manage and control themselves, unlike stocks, bonds or digital assets. "These investors appreciate being able to have a direct influence on the property's value and income generation potential by making improvements, for example, and overseeing the selection of quality tenants."  

*Wealth building. "Real estate can be a really effective tool for long-term wealth building as investors grow their portfolio and create additional equity in several properties. It is important to note that the leverage provided by the traditional real estate financing model enables investors to control a more substantial asset base with a smaller upfront investment, and potentially amplify their returns."

*Retirement planning. The income from well-managed rental homes can provide a steady income stream during retirement and supplement other sources of retirement income, he says, and this is particularly true of properties that have been bought and paid off well before the owners retire.

"It must be said, though, that real estate, like all investments, comes with risks and challenges such as market fluctuations, management responsibilities and liquidity constraints. Investors should thus always conduct thorough research about rental demand in specific areas, seek professional help to identify and evaluate potential purchases and appoint property professionals with the expertise and systems in place to help them manage their units most effectively."