By definition, a diverse investment portfolio is a collection of different assets — and since South African real estate is widely known as one of the country’s safest investments, no diversified portfolio should be complete without it.
As a relatively low risk undertaking, real estate investment can incorporate geographic diversification and varied investment styles into your portfolio.
How smart is investing in real estate?
Real estate represents a distinct asset class with a low correlation to traditional financial assets like stocks and bonds. Adding real estate to your portfolio can help spread risk and reduce the overall volatility of the portfolio. Since real estate markets may be influenced by factors different from those affecting financial markets, the inclusion of real estate in your portfolio provides a potential hedge against certain economic risks.
Real estate investments can also provide a steady stream of rental income, which in turns acts as a source of cash flow and contributes to the overall returns of your portfolio. Over and above this, while real estate generates income in the short term, it also has the potential for long-term capital appreciation.
What is the psychology of an investor?
The question of the psychology of an investor is often raised, but the key to this discussion is that every investor is different. As an investor, you may be risk-averse or risk-ready. Similarly, you may be prone to emotional attachment or overconfidence bias.
One thing that every property investor (albeit not necessarily every investor) will have in common is a love of property and architecture. With this comes an understanding that with the right advice and the right properties, they can build long-term wealth.
The phrase “FOMO” has come to prominence in recent years and this “fear of missing out” is a phenomenon that spreads to real estate investments. The more buyers there are in a booming market, the more hesitant buyers seem to jump on the bandwagon, blindly assuming that the majority must be right. If you’re including real estate in your diversified investment portfolio, always do so having sought solid advice from a trusted property practitioner.
Top tips for real estate investors in 2024
Perhaps the most important tip of all for investors considering venturing into the property market is to research the market. Understand local real estate trends in the area that you’re considering investing in and take the time to research property values, rental rates and potential for appreciation. Make sure you’re familiar with the differences between short-term and long-term investment strategies.
Consider investing in different types of properties, ranging from residential to commercial and industrial in order to spread your risk. On the same note, explore investments in various locations to minimise exposure to regional economic fluctuations.
Another strategy for successful property investment is to look for properties in areas with potential for long-term appreciation. Locations with planned infrastructure developments or improving amenities are great places to find an investment property. The key to success in real estate investment is being patient and adopting a long-term perspective.
In a nutshell, having real estate in your diversified investments portfolio means having a stable, tangible asset that will grow in value over time. To find out more about how you can make a wise real estate investment, speak to one of Seeff’s widely experienced property practitioners.
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