The Undeniable Benefits of Real Estate Investing

Investing for the future is something everyone should be doing.  Investing in ourselves, whether it be through health and fitness, education, or financially.  Trying to become better and ready to handle the many challenges ahead is something that should be an ongoing pursuit. 

Investing in the stock market, through either individual stocks or through mutual funds, is a common way to invest for your financial future.  Investing in the stock market provides an “easy” way to grow your retirement account.  Simply transfer money every month to your retirement account and watch it grow.

Today, we are going to talk about another way of investing in your financial future.

Real estate investing. 

Whether you are actively involved in real estate investing or the concept is completely new real estate investing is a great strategy. While there are many benefits to investing in stocks (liquidity, less work, potential tax benefits, low costs to purchase) there are equally (if not more) benefits to investing in real estate. 

Benefits of Real Estate Investing

Creates Passive Income

The entire premise for purchasing rental properties is to be able to rent the property out and provide housing for others.  Well that and to generate income.  When done correctly, the monthly rent received will cover all your expenses on the rental property (mortgage, property management, maintenance, etc.).  In doing so, the money left over after the rent has covered all your expenses is your monthly cash flow – this is monthly income for you!

Tax Advantages

Owning real estate can provide you with several tax advantages.  Remember those expenses that rental income is covering?  Well the IRS allows you to also deduct certain expenses associated with your ownership of rental properties.  Some common expenses include property taxes, mortgage payments, insurance, maintenance and repairs, property management expenses and many, many more!

Equity

One of the best wealth building attributes of owning real estate is the development of equity through property appreciation.  Typically property appreciation is anywhere between 1-3% per year.  Looking at this over a 30 year period, we can see how it can significantly increase the value of a property.  If that wasn’t enough, you will also see equity through paying down the mortgage through rental income!

Leverage

We’ve hinted at this with some of our previously listed benefits but let’s just go ahead and add it to the list!  To get into real estate investing you have to, own the property (except for unique circumstances).  Sure you could purchase the property outright, but by utilizing other people’s money (ie bank mortgage), you can significantly increase your wealth.  If you had $100,000 you could go and buy a $100,000 property and negate the mortgage and receive all that money as passive income (cash-flow).  Or, you could purchase FIVE $100,000 (assuming 20% down payment) properties by utilizing the power of leverage!

Security

Investing in real estate is one of the oldest asset classes.  It is also a long-term investment.  You can hold onto it indefinitely.  While there is the potential for properties to decrease in value, properties almost universally increase in value over long periods of time. It doesn’t provide a get rich quick option (usually) but it can provide you with some monthly income while you wait for appreciation!

Objective Evaluation

One of the great benefits of investing in real estate is your able to “run the numbers”.  Prior to even purchasing your investment property you can utilize purchase price, mortgage payment, expected rent among other common numbers to get a good idea of how the rental property will perform.  Having this insight can allow the investor to pick and choose what properties have potential.

Diversification

In an age where there always seems to be bumps in the road, having real estate in your investment portfolio can help provide protection.  With potential economic problems, the stock market may lead to decreased stock prices and a drop in your portfolio.  Your investment properties might be unaffected by the economics and actually increasing in value.  This can help protect you overall net worth if other investments are taking losses.

Protection Against Inflation

Inflation is a decrease in the purchasing power of money leading to an increase in the cost or prices of goods or services.  Thus as the prices of goods and services increase so do home values and rental income.  Increases in rental income will provide you with increases in rising monthly income and overall appreciation.  

Now that you’ve read about some of the many benefits of investing in real estate it’s important to ensure appropriate due diligence is taken.  It’s important to take the appropriate steps to identify properties in the correct markets to ensure you are fully realizing the benefits of real estate investing!