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Though a home is one of the largest investments the average investor will make, there are other types of real estate worth investing in. The most common type is income-producing real estate. Offices, retail, industrial and leased residential are the most common. This could also include less common categories such as hotels and parking lots. These investments generate income, but offer other advantages as well.
A diverse portfolio is a healthy portfolio. Real estate returns have low correlations with traditional investment vehicles like stocks and bonds which adds to the diversification of your portfolio.
Returns are linked to the rents that are received from tenants. Some leases contain provisions for rent increases to be indexed to inflation. Other times rents are increased when a lease expires and the tenant renews. Real estate income can react to inflation and allows us to maintain its real returns.
Real estate is a tangible asset. An investor can take action to increase its value or improve its performance. Things like replacing a roof, a fresh coat of paint, and finding better qualified tenants. An investor has a huge degree of control over the performance of a real estate investment.
As part of a portfolio, real estate allows you to achieve higher returns for a given level of portfolio risk. Similarly, by adding real estate to a portfolio you could maintain your portfolio returns while decreasing risk.
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