In March, Bankrate published an article titled “Top 10 investing tips for 2017.” With my hat tipped, I’d like to promote three of these for private real estate investors. Below are my top 3 real estate investing tips for private investors.
3 Tips for Private Investors
1. Reduce Your Fees – It’s well known that asset managers and financial advisors can take a huge cut in fees. If you have large real estate investments in your portfolio and your fees are based on a percentage of assets under management, then that can cut into your returns considerably. Even flat fees can be quite expensive if someone else is managing your portfolio. Marketplace lending allows private investors a way to increase their returns while reducing fees. Most marketplace lending platforms have much lower fees than investment managers and financial advisors, plus, there are usually built in ways to manage your portfolio for optimal performance. That doesn’t necessarily mean you have to nix your financial advisor completely. It may simply mean shifting a portion of your portfolio to a self-managed platform where you can easily choose your own real estate investments.
2. Master Your Emotions – Markets fluctuate. It’s the natural course of things. Your best bet against huge market fluctuations, even in real estate, is to diversify your portfolio. Instead of putting all your money into one asset class, spread your wealth around so that declines in one asset class don’t affect your entire portfolio. Beyond that, you’ve got to manage your emotions. Some of the worst financial decisions people make are out of desperation or when something unexpected happens and they panic. Have a plan in place for worst-case scenarios.
3. Review Your Asset Mix – You should review your asset mix at least once a year. You may have too much, or too little, of your total portfolio in a single asset class. If that is the case, then consider moving some of your wealth from an under-performing asset class into real estate or another alternative investment vehicle.
Why Real Estate is a Good Hedge Against a Stock Market Gone Bad
Every asset class has its advantages and disadvantages. When it comes to real estate, it may be illiquid, but it historically has had solid returns. One reason why real estate is such a good investment is because they aren’t making any more of it—that is, raw land. Scarcity drives up value in the long run, which means if you are a buy-and-hold investor, then you can count on appreciation to hedge against any stock market losses.
Fix-and-flip properties represent short-term gains, and where else can you go for double-digit returns with a 12-month turnaround? Marketplace lending is the best place that I know of.
Real estate also offers a lot of flexibility and tax benefits. It’s easy to develop an exit strategy and to execute on that strategy. If single-family home starts decline, you can shift your attention toward multi-family housing. If residential real estate dries up, then you can go commercial. With stocks, you may get stuck owning a dud if a company makes a bad decision. You are always at the mercy of the market forces with little warning if things go rough.
For these reasons, I say your best bet if you want to protect your entire portfolio from a stock-heavy asset mix is to shift some of that into marketplace lending, manage your own portfolio, and don’t let sharp downturns fool you into making panic-stricken decisions. Real estate is volatile, but the long-term trend in returns is upward.
For more investing tips for 2017 please read the article on bankrate.com.