Landa's Street Smarts Investment tips and tricks on Real Estate
Financing Opportunities - Debt and Margins
Debt is a common strategy investors use to make money moves. When investing in stocks and cryptocurrencies, borrowing money for investing, often called margin trading, involves a high-risk tolerance.
In real estate investing, debt packages, commonly known as mortgages, are a more manageable tool with lower associated risks. With a mortgage, an individual can typically invest in a new property with a 5-20% down payment or less, financing the remainder of the property cost.
Interest Rates
The "sweet premium" investors are willing to pay to borrow money to break up their total payment sum at the onset.
Higher interest rates tend to negatively affect earnings and stock prices (there are several exceptions to this).
In the real estate market, a high-interest rate environment causes the market activity to slow down. Furthermore, since investors with mortgages are required to pay interest, often their mortgages will increase, making them more expensive and less attractive options.
Investors should therefore maintain a pulse on the goings-on of interest rates as they will affect an investor's ability to borrow money affordably and grow their portfolio.
Hedge Against Inflation
Assets whose value hold and grow over time make for effective hedges against inflation. Yet many stocks (think consumer goods stocks) are also correlated with inflation.
Assets like real estate and cryptocurrencies face scarcity. Scarcity contributes to an effective hedge strategy since demand continues to increase long-term regardless of the inflationary environment.
Real estate investments are widely considered a strong hedge against inflation, as property values and rents typically increase with inflation.
The Takeaway
Diversification is a cornerstone of any investor’s portfolio.
Assets have unique characteristics, advantages, and risks. As always, diligence is key. Ultimately, there is no need to limit or box oneself to an asset or investing strategy. Investing across assets is a great way to diversify and strengthen your portfolio.
This concludes the overview of fundamentals to consider before and during your investing process. Consider yourself leveled up. Go forth and invest with your street smarts.
