Is real estate a good investment? The answer is a definite, yes! Although housing markets have recovered from the recession, some investors still feel wary of putting their money on real estate. This post will try to justify why real estate investment remains one of the best financial investment options for any middle-class family today. It requires minimal investment upfront but gives enormous paybacks. There are several advantages and rewards that you can reap from investing in good properties. And if you know how to play the game, you will increase your net worth in no time.
In comparison, investing in real estate has more benefits than investing in stocks, mutual funds, or bonds. With real estate, you can predict cash flow. Because of positive leverage, you get higher returns and equity growth via a debt reduction. It is a self-sustaining asset that appreciates. On the other hand, a stock is an example of a self-liquidating asset that requires the investor to have the ability to predict or forecast an investment opportunity so he can use it to earn a profit. Failure to execute this will result in an unsuccessful attempt to generate income.
If you have ready cash and want to invest in real estate, you need to choose investments that increase their value over time, especially in today’s fluctuating economy. In most cities today, the housing markets are going an upward trend. This is good news because it means it is a good time to invest in properties while prices are low.
I have listed in this post some of the other perks of investing in real estate to convince you that it is a good investment that you should consider for your future ventures. Here are the top five solid grounds on why real estate is one of the best options to generate passive income.
Let us dive into them!
- You have better control and flexibility over investment.
With stocks or bonds, you can’t control the potential return on investment that much. On the other hand, real estate gives you more control and flexibility in increasing returns. A perfect example of this is when you rehabilitate or renovate houses, then sell them with a much more significant markup or have properties that you bought rented out. When housing prices increase, most people will opt to rent. Hence, if you like more equity, you can still make income by renting your property out.
- You can create a steady cash flow.
A property can create a monthly steady cash flow when you rent it out. Unlike real estate, your money is tied up with stocks or bonds until you sell them. If, for example, you have a low monthly mortgage, you can have your property rented out to cover your mortgage expenses and then some. In this way, you will create instant monthly income for yourself and pay for any extra expenses such as repair and maintenance costs that might arise while keeping the house. The good news is if your home does not require any additional major fixings, you can use the extra cash to reinvest in upgrading it or for other investments.
- You can continue to generate income even if the economy is bad.
Real estate is a physical, tangible asset that holds more advantages than stocks or bonds. Even if the market does not perform well, the physical asset remains. This means that you will not lose the physical asset as you would in stocks because you can still utilize it to generate cash flow. Because housing prices fluctuate, it creates a chance for its value to grow over time. Even if the property increases with only the inflation rate, you can still get about a 3% increase in your house’s value, leading to greater equity in the long term.
- You can leverage your investment money.
When you start investing in real estate and discover its profitable benefits, you will find yourself wanting to invest more and maximize your investment by buying multiple properties. This will enable you to leverage your investment money further. You will have to give ten to 20% upfront to finance your first real estate investment. When the value of your property increases, your equity goes up with it too. And when you have achieved enough equity, you can begin to leverage it to purchase other properties by getting a credit line and using them as collateral. You can use that money to invest in more properties to flip them to sell or have them rented. Whichever way you choose, you can start off with a small investment and then, later on, bring in massive income in return.
- You can get tax incentives whether you rent out or resell your property.
Real estate investors get tax incentives whenever they purchase homes or properties to rent out or resell. If you buy a property intending to flip it, you can deduct the rehabilitation or remodeling costs as capital expenses when you sell it. By doing this, you can offset the profit to pay fewer taxes. For example, if you are executing the upgrades on your own and purchasing equipment to help you in the construction, that too can be deducted as a capital expense. In case you decide to purchase a vehicle to get to several properties to fix or flip them, this is also considered a deductible capital expense. Suppose you are a professional house flipper, up to $139,000 as capital expenses can be deducted. If you decide to hold your property for, say, over a year for any business purposes, the capital expenses associated with it can still be deducted. However, you would need to depreciate it for a set period. Remember that a residential property’s expenses linked to a real estate investment need to be depreciated for 27.5 years.
With all these in mind, investing in real estate is a no-brainer. There are more rewards that you can reap from it. If you know the game, it is a sure way to generate passive income. There are no other forms of investment that give such huge returns with a small initial investment.