ETFs Resources and Information

Is investing in real estate actually a good idea?

Foreign buyers are scooping up U.S. residential properties at an increasingly faster rate.

Foreign buyers are scooping up U.S. residential properties at an increasingly faster rate.

Two years ago, if you had asked the average U.S. investor the question that makes up the title of this article, they would have most likely laughed in your face. At the time, the national housing market was still roiling due to accelerating foreclosure rates and race-to-the-bottom home prices. Fast forward to 2013 and you have investors climbing over one another for the latest lucrative – and yield-producing – real estate options.

Interestingly, it appears that foreign interest in U.S. properties is driving some of the demand. As global interest rates were still relatively low at the end of 2012, organizations from little-known hedge funds to massive sovereign wealth groups sought new ways to put their money to work. Unsurprising to some, the then-bottomed-out U.S. housing market seemed ripe with opportunities.

According to The Wall Street Journal, roughly $5.2 billion worth of foreign capital has flooded into the U.S. housing market. Major countries like South Korea, Singapore and, most importantly, China, have all been involved in these developments. Yet one commentator quoted by the newspaper said that this isn't simply an American-style hunt for yield at whatever cost.

"There is less pressure on these investors to chase yield," Howard Roth, an Ernst & Young real estate analyst, said in an interview. "They are looking to invest for the next generation, not just for a few years like private-equity funds."

The ETF Database, an online finance research site, recently posited that real estate ETFs might be worth the time of diversification-seeking investors. Their analysis indicates that, since the market bottomed out in 2009-2010, real estate ETFs have delivered an average of 3-4 percent, which isn't bad considering the current economic climate. 

Investors shouldn't leap into real estate, and instead carefully review their own holdings to make sure that it is in their best interest, both for the short-term and the long-term. Utilizing the SmartStops financial risk management software system to ascertain risk levels can help individuals determine whether or not it's the correct course of action. Click here to learn more about how SmartStops will transform the way you trade, invest and grow.

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