Jim Cramer will scream at you that Investing in real estate plays an important role in helping investors to diversify their portfolios just like bonds till he is red in the face, “which doesnt take much” . Some investors may already be investors in real estate if they’ve purchased a home or condo. This is an important insight that home owners need to take into account when investing further in real estate. Obviously, you don’t want to be overinvested in any one particular market segment as this can prove to be a risky venture. Particularly in light of the recent real estate down turn.
Choosing to invest in real estate by purchasing a home is a very smart way to invest in real estate “as a start”. As long as certain rules of thumb are followed to reduce risk to the homeowner, ownership can be a very lucrative decision. This is primarily owed to the fact that the government allows for a very important tax break to homeowners. This deduction allows homeowners to deduct the interest they have paid on their mortgage from their federal income tax return. The significance of this deduction cannot be overlooked.
In addition to home ownership, some investors choose to get involved further by buying investment properties. While this trend peaked with the historic run in real estate that ended in 2008, there is increasing consensus that there are considerable bargains to be had in the current economic environment. One error that many real estate investors make is that they treat it like the stock market and assume they will be able to move in and out of properties similar to the stock market. Unfortunately, the housing market does not price as efficiently as the stock market and there can be considerable discrepancies between supply and demand. This can result in homes for sell sitting on the market for long periods of time while the owner is stuck making payments on the mortgage until they can unload the property. Be aware of your interest rate when purchasing real-estate because this will make or break your investment. If you are already in a bad loan consider refinancing or consolidating the loan.