When it comes to investing, real estate is one of the popular and recommended assets to store cash in. However, oftentimes, real estate investment is pitched against other investment types, stocks, mutual funds, and bonds. For newbie investors, such comparisons bring on headaches and confusion.
This article aims to settle the debate with 8 reasons why real estate is a superior investment, AKA why you should invest in real estate. Read on.
One of the primary reasons people invest is to create another stream of income. If this describes you, then investing in real estate is an excellent choice because it generates predictable cash flow. Rent from real estate investments can provide investors with reliable cash flow on a month-to-month basis.
Unlike stocks investments determined by the economic outlook of a company, real estate remains stable in an economic downturn. The demand for real estate properties never declines; people will always want to live in decent homes.
Case in point: the performance of real estate during the COVID 19 pandemic. Studies by the National Multifamily Housing Council show that 93.3% of multifamily apartment households paid rent as of May 27, and 89.2% of tenants paid rent in April. This statistic shows that the pandemic didn’t hard hit multifamily real estate investment. Although other real estate asset classes felt the pandemic’s economic impact, the value did not wipe out.
This is one of the most attractive advantages of real estate because only a few assets can be modified to enhance market value. Considering the fact that real estate is a tangible asset made of wood, stone, glass, and metal, it can be modified, in other words, renovated to suit the present demands of consumers. It doesn’t matter that the modification is cosmetic or structural; any positive change improves the appeal of your property and the pricing.
For centuries, real estate has proven that it is not a bubble asset. You won’t lose your gains and capital in one fell swoop. According to the National Association of Realtors, the cost of real estate has climbed by 6 percent every year since 1968. The 6 percent growth pace did not change even during the economic downturn of 2007. That means real estate performs well during a recession and impressively during an economic boom.
Arguably, the biggest advantage to real estate investing is LEVERAGE. In real estate transactions, you can use leverage to reduce the amount of money you need to acquire a property without losing your potential ROI to debt financing.
Let’s assume that a $200,000 loan is amortized (will be paid) over 35 years at 5 percent interest but 65% of the money required to pay for the property is borrowed. Even when you add the cost of paying the mortgage to the calculation, the yearly return will be an impressive double-digit of 22 percent or more.
Another good example of leveraging real estate is borrowing capital with property. If you’ve applied for loans or acted as a guarantor, you will understand that a financial institution prefers physical property over intangible assets like stock. For that reason, real estate can be used to apply for loans or used as a guarantee for accessing special services.
In the words of Russell Sage, real estate is the most solid asset ever developed by human ingenuity. It is arguably the only indestructible (doesn’t decompose or go bad over time) and imperishable asset that increases in value over time. The best part is that these qualities won’t be changing any time soon or ever.
When you invest in real estate, whether you purchase an empty land or a property, you can rest assured that your property won’t change address overnight. Your property will remain in your possession for as long as you want.
Tax laws give property owners tax relief. For example, the federal tax code allows multiple deductions for specific expenses incurred in owning property. These tax deductions reduce your overall taxes and property management cost while improving your income.
Another attractive advantage of real estate is that it is depreciable. The federal tax code permits the depreciation of the value of investment property over time. In reality, the value of your property increases over time. So the depreciation deduction law allows property owners to generate higher profit from their property while filing lower income for tax. Over time, this process creates higher income for you.
Asset managers consider real estate to be an excellent retirement asset. At the initial stage of ownership, the cash flow is lower but after paying the mortgage, the income flow improves. Also, it appreciates in value, yielding a greater amount as time goes by.
Considering the points above, it is clear that investing in real estate is a practical choice. Now rather than asking why should I invest in real estate, you should ask what is the best real estate property to purchase.
We recommend multifamily properties because they bring excellent returns with low volatility and many other financial advantages.
If you don’t have the time or inclination to learn every aspect of owning and managing real estate investment, consider using the service of a reputable asset management firm.
With an asset manager, you can leverage the knowledge and skills of several real estate professionals to your own advantage.
We look forward to supporting you in your desire to expand your wealth and reach your goal of financial freedom by means of multifamily real estate investment.
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