If you put your money on coffee and cattle in 2014, you might be smiling all the way to the bank. But if you backed crude oil and gas – well, not so much.
That’s the verdict from Business Insider’s recent charting of the performance of what it claims are all the major asset classes in the world. It’s a complex, visually striking chart that lays out, in shades of green and red, which assets showed a profit at the end of the year, and which didn’t. While the results are striking in some ways and strange in others, the chart is most notable for what it left out: that most stable and consistent of US asset classes – real estate.
Business Insider’s chart lists coffee as the most productive asset of the year, followed by cattle and a variety of foods, precious metals and other commodities, which makes for some strange rankings. Palladium performed better than cocoa, but sugar outdid platinum and soybean meal yielded worse returns than lean hogs.
High performers and low ones intersect at the boundary of orange juice and gold, and the chart predictably bottoms out with energy products such as oil and gas. But where is real estate? As Jason Hartman points out, real estate is no only a perennially desirable asset, it’s also one of the most protected, with a long list of tax breaks and exemptions that don’t obtain with any other kind of investment.
The housing crash of 2008 put real estate front and center in the public’s awareness. Millions of homeowners lost their homes due to foreclosure and loan defaults. The US real estate market struggled to recover, with massive numbers of homes stuck in the “foreclosure pipeline” and unavailable for sale. Houses were flipped and banks penalized for bad lending practices. Mortgage standards tightened. Economic conditions prevented hopeful homebuyers from getting a loan.
Through it all, though, smart investing in income property continued to yield returns – and as other assets such as precious metals and natural resources hit heir limits, opportunities in real estate continued, thanks to low interest rates and thriving local economies outside of the major real estate markets.
Real estate is always in demand. Everybody needs a place to live. And because conditions since the housing collapse have put homeownership out of the reach of many Americans, demand for rental is surging. Lending standards are tighter and so are constraints on budgets for things like down payments. People who might have bought a home in previous years are now forced to become long-term renters.
Add to that tenant pool the expanding numbers of people who choose to rent rather than buy homes, and it’s clear that current conditions are opening new opportunities for investors.
Tax laws are always changing, but even so, real estate remains the most tax-favored asset an investor can have. Depreciation, repairs, and ongoing maintenance are among the deductions a rental property owner can make. Some exemptions and deductions pertain to homeownership in general, while others are specific to investment property. In some situations, investors can even write off periods of vacancy when the property isn’t yielding a return.
What’s more, rental real estate will keep yielding returns for the life of the investment. With a mortgage paid by tenant rents, investors can keep their own money secure for other purposes. Risks are assumed by the lender, who can accommodate situations like natural disasters with loan grace periods and adjusted terms to help property owners get through a tough time.
The Us real estate market is many markets – and not all of them are created equal. Opportunities await Investors who can diversify their holdings into those mid range markets with opportunities for growth in thriving local economies. And those opportunities aren’t available with assets like precious metals, which have a limited potential for returns over the over the long term.
The 2014 overview of how major world assets performed makes for interesting reading. But without the heaviest hitting asset of them all – real estate – in the mix, the results may not mean much. For investors hoping to make long-term profits, income property trumps palladium and orange juice every time. (Featured image: Flickr/byrdiegyyrl)
Ferro, Shane. “Here’s How Every Major Asset Class on the Planet Did in 2014.” Business Insider. businessinsider.com. 31 Dec 2014.
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