REAL ESTATE
September 19

Key Reasons to Invest in Real Estate

Chief Editor

 

Real estate is one of the oldest ways to invest money and it's still going strong today. In fact, real estate has been one of the best-performing asset classes over time. Here are some top reasons why you should consider investing in real estate.

Stability

Real estate can help you build wealth over time. Real estate is a long-term investment that can provide stability for your money, making it a good place to keep your savings. This stability comes from the fact that real estate has historically been one of the safest investments on the market and has been less prone to inflation than other types of investments. In fact, when evaluating historical trends and comparing them with other asset classes (stocks, bonds, etc.), it's clear that property values have increased at least in line with inflation over time while still outperforming traditional stocks and bonds.

Return on Investment

ROI is a term that refers to the amount of money that you make on your investment. The higher the ROI, the better! It's important to remember that when you're making an investment, it takes time for your money to grow and mature. This is why real estate investors often say "slow and steady wins the race." They're talking about making long-term investments with low risk so they can earn bigger profits in exchange for waiting longer (but not always).

Real estate investors tend to bank on positive cash flow versus appreciation—meaning more people want to live in their rental properties than there are available homes, which drives up property values over time. This can lead homeowners who bought at the right time (and have been paying off their mortgages) into a position where they have equity in their properties worth tens or even hundreds of thousands of dollars on top of what they paid originally for them!

Predictability in Income

One of the most important benefits of investing in real estate is predictability. Unlike other investments, you can be sure that your monthly income will be consistent and reliable. This is due to the nature of some types of real estate investments:

  • Fixed monthly income

  • Predictable growth (that keeps up with inflation)

  • Monthly income that’s tax-free or low-taxed

For example, if you invest in a rental property, the rent from tenants won't fluctuate much over time—you'll know exactly how much cash flow each month will bring. If you choose to manage your own properties or hire a property manager, then there are other predictable costs associated with this type of investment such as utilities and maintenance work but these expenses are also fairly stable and easy to budget for long-term planning purposes.*

Inflation Protection

When you invest in real estate, you're not just making a financial investment. You're also making an investment in your future. The value of your house will hold up over time, and if inflation suddenly increases, it could potentially even increase in value faster than the rate at which wages are rising—which is good for homeowners!

However, if you don't want to wait until retirement to enjoy this benefit, there's another option: flipping houses. With so many people looking for homes these days (and home prices rising), it's likely that there will be plenty of opportunities to sell your property quickly for a profit once its value has increased enough.

Leverage

Leverage is an investment term used to describe the use of borrowed money to purchase real estate. In other words, leverage allows you to use someone else's money for your own gain when investing in real estate. Leverage can be a powerful tool for real estate investors because it lets them purchase property that would otherwise be out of reach due to cost or financing requirements alone. Leverage also gives you the more purchasing power and buying power: if you have $100K but want a $1MM property (10x), then leveraging would allow you to buy that property with only $100K down instead of having all of the cash on hand at once! This gives investors the ability to buy multiple properties at once or even take advantage of seller concessions such as closing costs paid by the seller (or even earn them back later based upon appreciation).

Tax Benefits

There are three main types of tax benefits that come with investing in real estate:

  • Depreciation. This is a great way to deduct an expense from your taxes, especially if you're just starting out. You can deduct depreciation on rental properties as well as your personal home!

  • Tax-deferred growth. If you invest in a REIT (Real Estate Investment Trust), the growth of your investment will be tax-deferred for several years until it's sold. This allows for greater long-term compounding potential and a higher return on investment over time than other investments such as stocks or bonds, which are taxed immediately upon sale.

  • Tax-free exchanges/exclusion of capital gains when selling property instead of cash flow generated by renting out homes/properties owned personally through holding companies or partnerships

Appreciation over Time

Real estate has historically appreciated over time, meaning that you can expect your investment to grow in value. Over the past 40 years, real estate has been nearly a perfect hedge against inflation: if you invested in the S&P 500 index (a broad measure of stock market performance) and real estate over that period, both would have returned an average annual return of 10%. The difference is that while stocks had a standard deviation (or volatility) of 18%, real estate had just 8% volatility. This means that while your investment might be down some years, it’s unlikely to drop dramatically as other investments might do in bad markets—and when markets recover, your property will increase in value faster than other assets may rebound. Real Estate also offers another advantage: unlike stocks or bonds where there are no physical manifestations of ownership (you own shares), with real estate there is something tangible and visible—you can see what you own and feel proud about it!

You probably know someone who owns their own home for retirement purposes—and why not? It's an easy way to generate income from an asset without having to sell it first before collecting rent checks every month from tenants!

Investing in real estate can be extremely lucrative when you can take advantage of some of the benefits it provides.

While this may sound like a sales pitch, it is not. Investing in real estate can be extremely lucrative when you can take advantage of some of the benefits it provides.

When you invest in real estate, you are doing so for many reasons:

  • To make money: There are multiple ways to make money with your investment and they include appreciation, rent, and cash flow.

  • To diversify your portfolio: Real estate has historically been one of the best investments available because it is stable, predictable, and reliable. It also has tax benefits that cannot be ignored when considering its financial merits when compared to other investment options such as stocks or bonds which come with their own risks but also offer greater potential returns on investment (ROI).

? There are many things to consider when deciding whether or not real estate is right for your portfolio, including how much money you can afford to invest in it and what types of properties would fit best with your other investments. 

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