Long-term investing in real estate is a great way to diversify your portfolio, but there are some important things to remember when entering the real estate world. One of the things to keep in mind is that investing in real estate is a long-term strategy. That is why, in this article, we describe what long-term investing is, what it takes and how you can best invest in real estate over the long term.
Long-term investing refers to buying and holding investments for an extended period, usually more than five years, to achieve long-term financial goals. This approach, therefore, requires a lot of patience, discipline and a long-term perspective, as it is based on the belief that financial markets tend to appreciate over time, providing investors with a positive return on their investments. Investing in several different things over the long term is possible, but often this involves investing in shares or real estate when you consider investments for the future.
There are several benefits to investing long-term. First, it allows investors to take advantage of the power of earning interest on interest, with investment returns generating greater returns over time. For example, if an investor invests €1,000 and achieves a 10% return in the first year, they will have €1,100. If they get another 10% return in year two, they will have €1,210. Over time, the compounding effect can yield significant gains.
Another benefit of long-term investing is that it reduces the impact of short-term market volatility. Financial markets are very volatile, and short-term fluctuations can be very unpredictable. However, the markets are more stable in the long term, and therefore, investors are more likely to achieve their investment objectives. Investing long-term allows investors to avoid the temptation to buy and sell investments based on short-term market movements, which could be detrimental to their long-term financial goals. The image below shows market crashes over the years, followed by a graph of how long it took to get over this crash.
As you can see, it takes an average of 1.8 years for the market to recover after a 'crash'. So, historically speaking, if one invests long term, they will not be affected by these fluctuations, and the market will recover without them doing anything.
Investing over the long term requires a particular way of thinking and a general knowledge of the markets, the opportunities and the risks. The most important aspects are discussed below.
Before starting to invest, knowing what amount to invest is essential, which means that investors need to have their finances in order. They should start by organizing their finances and creating a debt management plan if things don't go as they would like. When financial tasks are tackled first, it ensures that money can be placed into long-term investments and is well-prepared for any difficulties. Another tip is to consider how much money can be set aside from a regular monthly income. It is nice to start an investment journey with a certain amount and build it up with more capital by investing a proportion of one’s monthly salary over the long term. So, investors can determine how much they spend per month and how much they have left over to invest.
Every investor has different investment goals, such as saving for their retirement, paying for their children's education or going on a nice trip. Whatever you’re goal, understanding the time horizon is crucial in understanding all long-term investing strategies. The time horizon provides insight into how many years the money will be locked into an investment and indicates when the invested money will be available again. Understanding when the invested capital needs to be released will give investors a better idea of choosing suitable investments and the risk level.
Once the investment goals and time horizon have been established, an investment strategy can be chosen. It is important to spread investments so that risk can be kept to a minimum. Many investors choose to invest a percentage of their total investment amount and spread it across stocks, assets and real estate. However, it is crucial to building a comfortable portfolio so that investors can stick to their strategy. In the strategy, one also determines how much return is needed annually to achieve investment goals. Remember that the more return one aims to earn, the more risk is. The image below shows which investment type contains the highest risk and where you can find the highest earning. Creating a well-diversified strategy based on a risk appetite is crucial.
As is well known among investors, investing always involves certain risks. Therefore, before investing money in a project, investors should know the risks of the different markets. Therefore, the underlying research into the market in which one will invest is part of a good preparation strategy. If done well, investors are well prepared if something happens to you’re their investments.
As mentioned earlier, diversification is key when it comes to successful investing. Diversification is spreading investments over different markets through different investment platforms to minimize risk. For example, looking at long-term investing in the Netherlands, many people invest in real estate, shares and bonds.
Investing in real estate has long been seen as a reliable way to build wealth and generate passive income. However, traditional real estate investing methods, such as buying and managing rental properties, require significant capital and time investment. This is where real estate crowdfunding is a good alternative for investors looking to invest in real estate for the long term.
Real estate crowdfunding is a relatively new form of investing that allows multiple investors to pool their resources to purchase a property or property. This allows individuals to invest in real estate with smaller amounts without the need for significant upfront costs. Here are some reasons why real estate crowdfunding can be an attractive option for long-term investors:
One of the main benefits of real estate crowdfunding is that it allows investors to diversify their portfolios. Instead of investing large amounts of money in one property, individuals can invest in projects from as little as €100, spreading investments across multiple properties, reducing risk and increasing chances of consistent returns.
Investing in real estate traditionally requires a significant amount of capital, which can make it challenging for many people to get started. Crowdfunding platforms now enable investment in real estate projects from as little as €100. Read more about how you can invest in real estate through crowdfunding.
Investing in real estate through crowdfunding platforms can generate passive income through interest payments, which can provide a steady stream of cash flow for long-term investors. In addition, crowdfunding deals for real estate often have a long-term horizon, resulting in income from investments for years to come.