6 Reasons Why Many People Are Investing In Real Estate

Real estate properties are an excellent investment option for various reasons. Investors enjoy high returns, remarkable tax advantages, and also leverage real estate to build wealth. Here are …

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Real estate properties are an excellent investment option for various reasons. Investors enjoy high returns, remarkable tax advantages, and also leverage real estate to build wealth.

Here are some reasons why many people are investing in real estate:

  1. Passive Income

Is there anything better than making money without lifting a finger? Everyone wants to wake up to an overflowing bank account every day. This is the top reason why people are investing in real estate.

There are various ways in which real estate can create passive income for you. The most common one is earning rent from your property. Consider this:

You own a few multi-family buildings. Each of these units creates an income stream for you through the monthly rent paid by the tenants. This mode of income is crucial because it works for you in the long term. It can give you income for many years to come, depending on how long you want to own the buildings.

Many people are primarily motivated to invest in real estate because they want to save up for retirement. This means they want to replace the current incomes from their jobs. Real estate enables you to achieve this by creating an active, long term income stream.

There are various companies, such as the reverse mortgage, that offer investment options for retirement.

  1. Cash Flow

Another huge benefit of real estate property is its ability to create cash flows for investors. This benefit is realized when you invest in rental property.

Real estate cash flow is the net income you get periodically, after you’ve paid all the operating costs and the mortgage installment.

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  • Raise your rent– This is the most obvious way to increase your cash flow. You can acquire a low-performing property whose rent is lower than the current market demands, renovate it, and lease out at a higher rent.
  • Long-term tenants– Property vacancy is a huge cash flow killer. You must put yourself in a position to have long-term tenants. Make your tenants happy by responding to their queries and issues with urgency. Handle them professionally and don’t get too greedy to increase rent unreasonably. Remember the golden egg story!
  • Preventive Maintenance– Large repair and maintenance costs can consume a large part of rental income. It’s, therefore, crucial to take preventive maintenance measures to avoid high maintenance costs in the future.

An excellent real estate investment should give you a minimum of 6% yield (or return on investment) on a net basis.

  1. Appreciation

Besides earning rental income from your property, you can make a handsome profit when you decide to sell your properties. Real estate property tends to appreciate over time.

For example, in the US, from the years between 1960 and the early 2000s, not once was there a decline in property prices. Yes, every country is different, and various factors come into play in property valuation. However, regardless of factors like location, inflation alone pushes the cost of properties upwards.

When investing in real estate, many people look at the appreciation of the property. It may not be guaranteed, but it makes the investment worth it.

  1. Depreciation

Depreciation is a non-cash expense permitted by the tax laws. The tax laws allow you to depreciate the cost of your property over its useful life. However, remember that the actual value of the property appreciates over time.

The depreciation deduction allows investors to generate higher cash flows over time (e.g. higher rents) yet report a lower taxable income by charging depreciation. You experience a higher return than what you may have initially expected or realized. Awesome, right?

  1. Leverage

Another crucial advantage of real estate is that it can be leveraged. Leverage is the use of financial tools or borrowed capital, such as loans, to increase an investment’s potential return. For example, a 20% down payment on a mortgage can get you 100% of the house you want to own.

The following are ways how real estate investors leverage their property:

  • Leveraging Investment Capital– You can use borrowed capital to boost the earning potential of an investment. Obtaining financing for real estate assets is possible because a property is a tangible asset. The potential returns from a leverage real estate property are higher as compared to those from a non-leveraged property.
  • Leveraging Mortgage Financing– You can also leverage your real estate property by using the rent obtained from it to pay for the mortgage. The rental income you get from your property is normally sufficient to pay for the mortgage and any associated fees for every unit that you may have. Reverse mortgage Portland Oregon can help you leverage your property on a mortgage.
  • Leveraging time– You can choose to leverage your time by hiring a property management company. You will benefit from your property financially while leaving the day to day management to professionals.

This means that you enjoy all the benefits of your property even if you’ve got a mortgage. There aren’t many other investments that can let you do this.

  1. Equity and Wealth Buildup

Real estate has, over a long time, proven to be a powerful tool for wealth creation. When most people buy real estate, they put a fraction of the total price as a deposit and receive the rest of the cash through debt financing from lending facilities.

The loan is paid slowly over time. Each time you make a mortgage payment, a part of it goes towards repaying the principal value of the property. The other part goes towards paying off the interest. You own more and more of the property with each payment.

The rents can cover the mortgage payments if you own rental units and have ensured that you’ve made a good investment. This way, you’ll have money left for repairs, maintenance, and more.

When you finish servicing the mortgage, the property is all yours, and your tenants have paid for a majority of the costs. As you build more equity, you can buy more property and increase your investment portfolio, wealth, and cash flow.

In Conclusion

There are many advantages of putting your money in real estate. It’s a safe financial investment that’ll give you years of returns and cash flow.

A real estate property is a remarkable source of passive income and equity. Real estate properties appreciate over time. This means that you can make a good profit when you sell them after a few years. You can also use the depreciation accounting method to pay lower income tax while getting regular cash flows.

Real estate is becoming better and better for people seeking to put their money to work. 

Author Bio

Corey Stephens is a financial advisor who helps start-up business owners organize their finances. Corey also helps his clients come up with the right investments in order to expand and grow their businesses.  Corey also loves to share his expertise online by writing articles.   

 

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