Most investors know that realistic returns can be generated from diversified portfolios. However, many investors are still apprehensive about the idea of including real estate as part of their investment plan. According to investor Eugene Bernshtam, this is unfortunate because there are several compelling reasons to consider investing in real estate – especially within a well-diversified portfolio.

Real Estate Has More Upside Potential Than Any Other Asset Class

Depending on market conditions, it has been possible to achieve returns of up to 50% or more in real estate. For example, during 1997 – 2007, when the U.S. stock market was essentially flat, real estate was already showing a strong price appreciation of over 130%. This means that someone who invested $100,000 in real estate in 1997 would have seen the value of their real estate holdings increase to over $230,000 by 2007.

On the other hand, during this same period, a steady and disciplined investor fully invested in the S&P 500 would have only seen their investment double from $100,000 to $200,000. This is a $100,000 difference in returns – and this is just one example.

Over the past four years (2017 – 2021), we have seen similar strong real estate price appreciation as prices continue to catch up after the 2008 market correction. It is important to remember that real-estate markets and economies go through natural cycles of booms and busts, and the fact is that real estate will always recover.

Real Estate Can Be A Solid Hedge Against Inflation

Over time, inflation has a compounding effect on the price of almost everything. For example, if in 2008 an investor bought a home with a down payment of 20%, their mortgage would have been approximately $390,000 at 4% interest. However, if their property was financed for 30 years, the total amount they would have paid over this period is $1,412,322, or an increase of 129%.

However, if the investor had instead made yearly payments of $20,000 on their mortgage principal – which included the monthly payment at 4% and the principal’s yearly payment at 10%- they would have paid over $1,020,000 in total, an increase of only 53%. This is because, during years of inflation, monthly payments are fixed, but paying down the principal each year with extra funds will offset the effects of inflation.

As a result of this compounding effect, the real estate value has an upward trend due to inflationary pressures.

Real Estate Can Be A Hedge Against Natural Disasters And Other Acts Of God

Natural disasters – such as earthquakes or hurricanes – can be devastating. For example, consider what happened during Hurricane Katrina in 2005 when over a thousand people died and caused damages worth approximately $135 billion.

Although no one can predict the unpredictable, investing in real estate can help offset some of this risk. This is because real estate offers an opportunity to diversify across different geographical regions – so if something happens to one region, there may be other areas that are not negatively impacted by it.

Real Estate Can Offer A Vehicle To Boost Cash Flow And Generate Additional Income

Many investors purchase real estate for the potential cash flow that they can receive each month. The key thing to remember is that cash-flow investing relies on buying property at a lower price than what it can be resold for, so this means that investors should look for properties that are below market value. Keep in mind that there is a big difference between the price and the value of a property.