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Nearly a third of the average American’s net worth is tied up in real estate. The size and scale of the real estate market make it an attractive sector for many investors, but understanding the factors that drive it is essential when evaluating a potential investment. Here are four to keep in mind.

Age, race, gender, income and other demographics are often overlooked when considering the demand and prices for real estate. Major demographic shifts can affect real estate trends for decades; for example, the transition of Baby Boomers from employed to retired. Real estate investors need to weigh the impact of demographic trends on any property they consider.

Changes in interest rates influence a person’s ability to buy a home. When they fall, mortgage costs decrease, which increases the demand for real estate and pushes prices higher. When they climb, obtaining a mortgage becomes more expensive, and the demand for homes falls.

It’s important to be aware of how sensitive the market is to the economic cycle. Broadly speaking, when the economy is sluggish, so too is the real estate market. Governments often use tax credits, deductions and subsidies to temporarily boost demand for real estate. Spotting these manipulations can help an investor recognize false trends.

And choosing the best method of investment is always important. Direct investments entail buying property to resell in the future for a profit. But the average investor prefers indirect real estate investments, such as real estate investment trusts, which require less capital and charge smaller transaction fees, yet still provide access to liquid investments.

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