Diversifying investment portfolio is the strategy of dividing investments among different types of asset classes, industries, geographical regions, and time frames. By diversifying your investments, the risk of loss is spread across all your investments. In comparison, if all your money is invested in only one security, for example, and that security suddenly tanks, then you have lost all your money.
This same principle can be applied not only to specific security (investment vehicle) in the same class or industry. In fact, it is a good strategy to spread your investments to other industries such as real estate through online crowdfunding platforms such as EquityDoor.
There are several advantages to investing in real estate. Some of them are tax breaks and deductions, cash flow, hedge against inflation, capital appreciation, and real estate leverage.
Tax Deductions
One of the main reasons why investing in real estate continues to be one of the best investment vehicles is because of the tax breaks and deductions it offers. You can use depreciation to reduce your tax liability for the reasonable costs of owning, operating, and maintaining your property.
Cash Flow
Cash flow from real estate is the difference between cash inflows (rent checks, principal, and interest payments on mortgages) and cash outflows (maintenance costs, property taxes, and mortgage payments). Positive cash flow occurs when the income generated by a real estate investment covers the expenses of ownership. This gradually increases in the long run as you make payments towards the mortgage.
Hedge Against Inflation
Inflationary pressures drive the price of goods and services up over time. As this happens, so is the price of land and house also increases in value. Hence, counter-balancing the effect of inflation. This results in capital appreciation and increased rental income.
Real Estate Leverage
Real estate leveraging involves using the equity in a piece of property to secure loans or other outside sources of capital, which are then reinvested into the property to increase its potential return on investments.
Capital Appreciation
Typically, the price of land and houses increases value over time. At the right time, a good real estate investment can sell much higher than the cost of acquisition.
Data from the Federal Reserve Bank of St. Louis also shows that the price of houses sold in the United States is in an upward trend despite several instances of recessions from 1963 to 2021. The graph below shows blue bars (representing home value) against periods of recessions in gray bars.
Diversifying Investments through EquityDoor
At EquityDoor, we’re pairing state-of-the-art technology with dedicated project owners who are looking for investors to share in the same projects they’re investing in, too. They bring diverse projects from across the country, and you choose which ones to invest in and to what level.
While other platforms are focused strictly on commercial properties and “million-dollar-plus” deals, EquityDoor is creating an investment community for the rest of us. And by eliminating the typical costs, complexity, and reliance on traditional banks and real estate insiders, EquityDoor’s peer-to-peer lending eliminates the barriers that have blocked access in the past and opens the door to real estate investing for anyone with as little as $1,000 to invest.