Investing in real estate is one of the best methods for making money and accumulating wealth. It is a fairly easy business to get into, and you can start with no to very little money.
And over the years, I’ve found that real estate provides many advantages over stock market. You can make returns of more than 10% on cash you invest from rental income. Your investment provides monthly cash flow, and residual properties typically go up in value, providing capital appreciation.
With real estate you have more control over the underlying asset. That means there are many opportunities to minimize your risk through continues education.
1. Real estate investing provides cashflow which can be a hedge against inflation.
After all, I don’t think there is any other big world in investing than cash flow. When it comes to real estate investing cash flow is the king. But still there are many who buy for capital gains, hoping and praying that the price of there property may go up.
Then what is cashflow, or in other word positive income. For instance if you purchase a company stock that pays a dividends, then as long as you own the stock, it will generate cash flow. In real estate, let’s say you purchase a house and instead of selling it you decide to rent it out. Every month. You collect the rent and pay the expensed, including the mortgage. If you bought it at a good price and manage the property well, you will receive a profit (cash flow).
And what’s nice about rental income is that your cash flow keeps pace with inflation. The market price for rental properties automatically rises as the cost of living increases.
2. Real estate investors can leverage to build wealth.
When leveraging a property, you borrow funds from lender to be able to purchase an investment property instead of having to cover the entire purchase price with your money. Being able to leverage your investing is one of the many reasons real estate investing is so attractive.
E.g you put 30% down on a $100,000 property. You are controlling an income producing asset worth more than three times your cash investment. You are earning rent from a $100,000 property when all you invested was $30,000.
It is advisable for real estate investors to use leverage when financing a property. So you don’t have to put in all your own capital into buying the property. It can help you buy a property that costs more than the amount of money or to spread out your cash among multiple properties. And building there portfolio.
When the rate of return on the investment, is greater than the interest on the bank leverage and other monthly necessary expense like insurance. The investor received a positive cash flow.
3. Control of investment.
I’ve been hearing folks saying investing is risky. Yes! What you don’t have any control over can be risky. But Sophisticated real estate investors have control over there investments, because they know what they are doing.
Every physical real estate investment you make puts you in charge. As CEO, you are able to make improvements, cut costs (refinance your mortgage). Raise rents, find better tenants, and market accordingly. Of course you are still at the mercy of the economic cycle. But overall you have much more leeway in making wealth optimizing decisions.
4. Inflation hedge.
Stocks don’t have a built in inflation adjustment. And stock prices can and often do swing widely, diluting the value of your shares instantly.
Inflation average 3% annually. Home priced typically adjust up with inflation. This is because housing is essentially consumer goods. And inflation cause the price of consumer goods to rise. A significant drop in the market such as what we’ve seen in the past can reduce your principle so much that it could take you years to recoup your initial investment.
5. More taxes advantage.
While there are others, depreciation is an accounting method that allows you to deduct the value of an asset over it’s useful life.
Example. Imagine if a farmer bought a tractor for their business. The tractor is only going to last for a certain number of years. Until the farmer needs to purchase another tractor. So IRS allows the farmer to deduct a Percent of the cost of the tractor from their taxes each as a business expense.
But what’s great about real estate is that you are depreciating an asset that does not lose value. In fact, property values tend to go up overtime. That means you get a tax credit on the cost of an asset that may be going up in value.
Because of this. You get to take a tax deduction to offset the income the property is producing for you. Helping to save money over time.
What is real estate importance to the economy.
90% of millionaire’s credit real estate as a major contributor of their networth. If it’s a major contributor of their networth. It will be a major factor to your net worth also and help you join that millionaire status club.
Real estate is a vital aspect of our economy terms of job creation and can create substantial wealth as well for investors. And also many other sub-market that benefits greatly when people buy and sell real estate. Such as construction industry and all the companies who create things people buy for their home such as furniture, appliances and random items.