Conservative and risk-averse investors are always looking for stable investments. There’s no shortage of potential assets to invest in, and no shortage of investment strategies to consider, but many of them introduce volatility to your portfolio.
If you’re interested in making stable, reliable gains or producing a steady stream of income, you need to have a much more stable portfolio. Is real estate considered a stable investment? Can it help to bring more stability to your investment portfolio?
The Many Forms of Real Estate Investing
Immediately, we need to address that this is a very difficult question to answer. That’s because real estate investing takes many different forms.
A real estate investor could choose to focus on residential properties or commercial properties. They could optimize a portfolio for generating rental income or focus more on flipping properties for short-term profit. They can make decisions with long-term gains in mind, or make temporary plays they intend to abandon after a period of a few years.
Beyond that, you can leverage other experts to help you find and manage your new properties. You could hire a property manager to take care of almost everything on your behalf, you can work with contractors to delegate some of the work, or you can even invest in real estate investment trusts (REITs) to have someone else manage your real estate portfolio for you.
Accordingly, we can’t definitively say that real estate is or is not stable, since all of these different options offer different levels of stability.
Different Types of Stability
This question is also difficult to answer because there are different types of stability to consider.
- Regular cash flow. Are we talking about stability in terms of regular cash flow? If so, we can consider residential and commercial real estate investing to be stable. With the right property, you should have no trouble maintaining occupancy and collecting more money in rent than you spend on general upkeep.
- Property value (day to day). Day to day fluctuations in the real estate market are common, with big fluctuations from quarter to quarter and year to year. In a single year, real estate prices may drastically rise or dramatically plummet. Because of this, it’s hard to say that real estate prices are stable.
- Property value (long term). In the long term, however, real estate prices and value growth seem to be reliable. Real estate is one of the best performing investment assets available and most properties have no trouble retaining their value or increasing their value over the course of years.
- Recessions and Black Swan events. What about recessions and other unexpected, Black Swan events? Most of us are familiar with the 2008 financial crisis, which was heralded by a massive real estate market crash. These freak occurrences do happen, and we need to prepare for them. However, historically speaking, real estate always makes a full recovery.
Is Real Estate Stable?
So does this mean that real estate is a stable investment?
For the most part, yes. There are some types of real estate investing that are less stable than others, and you should exercise caution to avoid them. But in the long-term time horizon, real estate has historically been highly reliable.
Making Real Estate Stabler
If you’re concerned about your real estate returns, there are some measures you can take to make real estate investing stabler.
- Diversify your portfolio. One of the easiest ways to boost the stability of your portfolio is to diversify it. In the real estate world, this means getting exposure to many different markets and many different avenues of real estate investing. Depending on how much money you have and what your goals are, this could mean investing in both residential and commercial properties, investing in different cities, or employing different strategies when buying and managing property.
- Go with safe plays. There are plenty of high-risk, high-reward plays you can make in the real estate world. For example, many people have become millionaires through the art of property flipping. However, if you’re more interested in stability than the adrenaline rush of a high prospective return, you should be more focused on safer, more down-to-earth plays.
- Buy low. Keep an eye on real estate prices and jump in only when you find good deals. Too often, novice investors take real estate investing advice to mean that any real estate purchase is a good one. This is not the case. You need to be careful and discerning when buying property, and only add real estate to your portfolio when you find a good value.
Improving Portfolio Stability
Of course, we also need to address the fact that your entire portfolio should be stable. Real estate, for all its advantages and all its intrigue, it’s still just one type of investment – and should therefore only be a part of your overall portfolio. To protect yourself from financial catastrophes and improve the stability of your returns, it’s advisable to invest not only in real estate, but also in stocks, bonds, and other assets.