What is one key advantage of direct real estate investment?

One key advantage of direct real estate investment is the potential for significant leverage. Leverage refers to the use of borrowed capital to increase the potential return on investment. In the context of real estate, investors can typically finance a substantial portion of the property purchase with a mortgage. This means that for a relatively small amount of equity investment, an investor can control a much larger asset.

This ability to leverage can magnify returns if the property appreciates in value or generates rental income that exceeds the cost of borrowing. For example, if an investor puts down 20% of a property's purchase price and the property increases in value by 10%, the return on the investor’s equity can be significantly enhanced due to the leverage effect.

Other considerations, such as high transaction costs or mandatory public reporting, do not serve as advantages and often act as drawbacks in direct real estate investments. While diversification is a fundamental investment principle, the notion of avoidance in this context may suggest a lack of spreading risk, which is not an advantageous position for most investors. Thus, the significant potential for leverage clearly stands out as a central benefit of direct real estate investment.