Real estate investing is a lucrative opportunity for many. In fact, it is often the most recommended investment.
It’s not just the field of real estate agents who want you to buy property. Smart investors are also convinced that real estate should be part of your portfolio. Why? Let’s dive in!
1. Real Estate Is A Long-Term Investment
Real estate can be a great long-term investment because it usually offers a solid return on your money. You can make money by renting out your property or by selling it at a profit.
The market value of land and buildings tends to increase over time, meaning that you could sell your property for more than what you paid for it at some point in the future
If you have enough capital, you could even buy a multi-unit building and rent out all the units instead of selling them off individually.
2. Real Estate Is A Tangible Asset
Real estate is tangible — meaning that you can touch it or feel it — unlike some other investments such as stocks and bonds that are less physical in nature.
This means that real estate isn’t subject to fluctuations in market prices like other kinds of investments; if the economy crashes, it won’t affect your ability to sell or rent out your property unless there’s an actual change in its condition (for example, if there’s water damage).
3. Real Estate Offers Great Leverage.
Unlike stocks and bonds, which require you to put up 100% of the money in order to invest, with real estate you can borrow money at a lower rate of interest than what you would earn if you had to pay cash for the property.
You then use the borrowed money as your down payment and pay it back when the mortgage is paid off (or refinanced).
This means that with smaller amounts of capital, you can buy more property than if you were paying cash for each purchase.
4. Real Estate Is An Equity Builder
Over time, rents will increase while mortgage payments remain fixed, creating equity in your property that can be used as collateral for additional loans or investments at any time without selling the property itself.
This allows you to control more assets without having to tie up vast amounts of cash in holding those assets until they appreciate significantly in value.
5. Real Estate Offers Tax Breaks
One of the biggest advantages of investing in real estate is that it can often be bought and sold without incurring capital gains taxes, thanks to the 1031 exchange rule.
As long as you follow certain rules — including holding the property for at least two years — you won’t have to pay any taxes on profits from a sale.
This can be especially valuable if you’re selling an expensive property or one that has appreciated significantly in value over time.
6. Real Estate Provides Cash Flow And Income
Real estate provides cash flow and income in a number of ways:
- Rent payments from tenants
- appreciation of your investment
- depreciation deductions as part of your rental income
- capital gains when you sell (if it’s held long enough)
- and sometimes even interest on a mortgage payment if the bank allows it.
7. Real Estate Is Recession Resilient
Real estate is an excellent hedge against inflation and deflation. Because of the scarcity of land, real estate prices tend to hold up better than other investment classes during periods of inflation and deflation.
In addition, real estate is not a zero sum game like stocks and bonds where one investor wins at the expense of another investor.
For example, if you sell your house for $100,000 and buy another house for $100,000, you have not made money but rather have simply exchanged one asset (your old house) for another asset (a new house).
In contrast, when investors sell stocks they are always taking money out of the market and therefore weakening it.
8. Real Estate Typically Goes Up In Value Over Time
The value of real estate tends to go up over time due to inflation but also because people always need places to live or work.
Real estate prices are also influenced by supply and demand factors such as population growth (supply) versus jobs created (demand).
These factors may be affected by policies enacted by government officials who can influence interest rates which affect housing affordability for first-time home buyers.
For example, when interest rates are low it encourages more people to buy homes because they can afford them with less money down.
Changes in interest rates can also affect commercial real estate prices, which are typically based on the supply and demand of office space.
9. Demand For Real Estate Will Always Exist
It doesn’t matter whether the economy is good or bad, people will always need places to live and work.
Even during recessions, people still need places to live so they can save money by not having to pay rent and cut down on transportation expenses by having their own car instead of taking public transport or cabs everywhere they go.
Conclusion
In the end, a smart investor will likely choose real estate if they wish to be able to add significantly to their net worth over time.
The growth potential of real estate is incomparable to most other investments, and the cash flow can give investors a steady source of income for retirement.
Working with a good team of professionals will help new investors, or even experienced ones, navigate this complicated industry and land on sound financial footing. It’s important to understand that real estate is not a get rich quick scheme.
It takes time and effort to build a solid portfolio of properties; however, it can be very rewarding in the long run.
With the right team behind you, anyone can become a successful real estate investor over time.
More from HousingFinds.com
