Investing In Real Estate: A Stable Port In a Storm of Volatility
As news of tariffs and stock market corrections takes hold this week, you can expect to sweat a little bit over your portfolio. Nothing about this is awful, mind you; the stock market by nature is volatile and subject to everything from investor psychology to world events.
More to the point, the stock market has been on a nearly nine-year bull run and is due for a correction relatively soon, although again, this isn’t something to stress over. If you look at the big picture, the stock market has an average increase in value of 9.8% per year across the postwar era.
Still, all of this may be a bit much for some investors to stomach without forming at least an ulcer or two. So what can you do to stabilize your portfolio as the stock market begins to swerve?
With each passing year, more and more people are becoming private lenders to finance real estate investments for which they themselves are either too busy or lack the required expertise. So what’s going on here, and what is a private lender?
We’ll get to the second part of that question in a minute, but the long and short of what’s happening more broadly is that more and more working-class people are waking up to the reality that real estate, as a tangible asset, tends to be more stable than the stock market in general. It’s pretty easy to see why, because real estate has a predetermined inventory; it’s not like they’re making any more of it these days, after all.
Therefore, as demand increases due to things like economic and population growth, the need for real estate stacks up against its finite availability. This is why real estate prices and home values tend to reliably go up year after year with less potential to form a bubble like some commodities (it’s even more stable than oil which, though there’s only so much in the world, can still vary wildly in price according to supply and demand).
This is why many people are becoming private lenders. What does that mean, anyway?
Becoming a private real estate lender means becoming the bank for real estate deals, as it were. Does this mean you need to hand over your hard-earned cash to every smooth-talking huckster? Of course not! As with any investment (or loan, for that matter), you need to do your research. Still, the returns can be big, and your leverage to negotiate favorable terms for yourself is considerable.
It helps to be familiar with the process and what you’re trying to do with your investment, obviously. That goes double for the accuracy of your assessment of your borrower. It’s also important to understand that real estate is, unlike some investments, quite illiquid, meaning it can’t exactly be sold at the drop of a hat.
But again, the returns are worth the illiquidity and the advantages afforded by the stability of real estate as well as its reliable upward trend in terms of value is nothing to ignore.