INVESTING: Definitions 103

In a previous article, we defined an asset simply as something that generates money. In this issue, we want to look deeper into one particular asset class – REAL ESTATE. 

As an investment asset, real estate can take the form of farmland, rental houses, apartments, storage units, office buildings, warehouses, or commercial properties (like a fast food restaurant) just to name a few.  It is often very capital (i.e. money) intensive to invest in real estate, which is why many investors use debt to finance the purchase. The revenue (or rent) from real estate ideally helps pay for the debt obligation, and more. 

We addressed liquidity in a previous article (you can read it here) and real estate can pose some challenges depending on how you choose to invest.  Private investors may find it difficult to liquidate a real estate investment when they wish to sell.  Fortunately, there are many public mutual funds, interval funds, and other investment options dedicated to real estate that can provide exposure to the asset class while also providing liquidity. FM Financial includes a real estate allocation in most of the portfolios it manages.

While many people view their home as an asset, it typically does not produce revenue and requires you to spend cash for taxes, upkeep, etc. Therefore, we do not consider it a part of your investment portfolio.

Whether you want to be a landlord or simply make use of the investment funds available, real estate is a great asset class to include in a well-diversified portfolio. The many options offered today make it easily accessible to all.