When most people think about investing, they think of buying stocks. But another significant investment that can yield similar returns is real estate.
Here are the top 8 reasons you should consider investing in real estate:
- Article Summary Show
Passive income
Real estate investing can generate passive income. By charging tenants rent and fees, you can pay off the property expenses and keep whatever is leftover. This steady flow of cash from month to month is called cash flow.
To make real estate investing genuinely passive, you can hire a property manager to manage tenants, maintenance, repairs, and more. Or you can invest in REITs (real estate investment trusts) or crowdfunded real estate deals that allow you to own real estate shares without managing them yourself.
Appreciation
Because land is in limited supply, real estate values tend to appreciate over time. If you buy and hold property, you’ll likely profit when you sell. After all, as Mark Twain once said, “They’re not making it anymore.”
Tax breaks and deductions
Real estate investing comes with several tax benefits. For one, you can deduct any property expense as a business expense. This includes maintenance, repairs, managing tenants, and more.
You can also deduct your property taxes, insurance, mortgage interest, and depreciation.
If you sell your property, any gains will be taxed as capital gains, which are taxed at a lower rate than regular income. And if you immediately invest your profits into another property via a 1031 exchange, you can indefinitely defer the capital gains tax.
Equity
Investing in real estate allows you to build equity in your home. Instead of paying rent, you can pay off a mortgage that will increase your net worth over time. This is a great way to increase your wealth and work toward retirement.
Diversification
Real estate investing helps you diversify your portfolio. It has a low correlation with other asset classes like stocks, so if the market dives, your real estate investments won’t be impacted, and you’ll have fewer losses.
Leverage
Real estate allows you to take advantage of leverage. For example, you can use a down payment of 20% to get a mortgage and still get all the benefits of appreciation and rental income. In addition, you can use your house as collateral to finance other investments.
Hedge against inflation
Real estate investing is a good hedge against inflation. As the prices of goods and services increase, so do home values and rent prices. This means you can pass on inflation pressure to tenants and future buyers.
Long-term security
Lastly, real estate is a relatively secure investment. People will always need a place to live and work, so you can expect your property to always hold value.
Plus, real estate has innate value. Unlike some investments, even if the economy crashes, it still provides a physical asset you can use and live in.
Adding it all up
Ultimately, there are many places you can invest your money. But real estate offers many benefits that many investments don’t: Safe, passive, profitable, tax-efficient, and tangible. What more could you want from an investment?
To get started in real estate investing, you have many options. You can take the fix-and-flip, buy-and-hold, and short- or long-term rental approaches. You can invest in a REIT or a real estate crowdfunding platform. Or you can rent an extra room or storage space in your house. The possibilities are endless.
And once you get started, the benefits will only compound, deciding to invest in one of the best you’ve ever made!
