Since 1940, real estate in the United States has continued to increase in price. This makes it a great investment strategy.
But if you’re new to the investment world, you may need a little more convincing. With so many possible investment opportunities, you might not be sure about real estate.
That’s why we’ve created this guide. Keep reading for the top 6 benefits of investing in real estate.
A Steady Income
First and foremost, investing in real estate can bring you a steady income month after month. For example, let’s say you’re able to purchase a condo and your mortgage is $900 a month. And you can rent it out for $1050 a month.
This means that every month, someone else is paying your mortgage and you’re earning an extra $150 that you can put into savings. It’s a win-win.
Before you invest, do some research on various locations. This is a crucial part of your real estate success.
Often, it’s better to purchase a rental property in an urban area that has a college. Here, the demand for housing is always high thanks to the constant presence of students.
Also, remember that you don’t have to stop at investing in one property. If possible, you can invest in multiple rentals at once to increase your positive cash flow month after month.
Long-Term Financial Security from Appreciation
While the monthly financial benefit is great, investing in rental properties also will provide you with long-term financial security. This is because of a financial concept called appreciation.
Here’s how this works.
While your loan is being paid off, decreasing in value every year, the value of your property usually goes up.
Year after year, property values grow which means that if you hold on to your assets for a long time, you’ll be able to sell them for much more than you bought them. All while having someone else pay your mortgage month after month.
For example, say you bought a townhouse for $250,000. If you hold on to it for 10 years, renting it out month after month, let’s say you can eventually sell it for $350,000.
This means you’ll make $100,000 on the sale of that property as well as reap all of the equity that you’ve put into it. Say hello to a win-win situation.
Great Tax Benefits
Simply put, the government tends to reward rental property owners when it comes to taxes. This means that if someone earns $50,000 owning their own business and you earn $50,000 through rental properties, you’re going to get to keep more of that money.
This is one of the benefits of investing in real estate. Here’s why.
As a property owner, you can benefit from depreciation tax benefits and low tax rates for long term profits. Plus, you can get a break on your taxes the year you purchase your place. And you don’t have to pay a self-employment tax.
And what does this all mean? More money in your pocket at the end of the day.
There are lots of investment options out there, including stocks, 401ks, and Tactical Asset Allocation. Real estate is also popular. And so is investing in stocks and bonds.
But the truth of the matter is that the real estate market offers super competitive returns compared to the stock market. In fact real estate tends to outperform stocks two to one.
Add this to 3 or 4% annual appreciation like we discussed earlier, and you’ll see great financial results from your investment.
Hedge against Inflation
We’re all familiar with inflation, the financial concept that explains that prices increase over time in the economy.
Other forms of investments, including many stocks, can be negatively affected from the long-term effects of inflation. But since real estate is what’s considered a hard or tangible asset, it’s able to withstand inflation at much a higher rate.
Since real estate fulfills the basic need of having a place to live, it’s always going to be needed. This makes it so that home values and rents increase over time.
Thanks to the brick and mortar nature of real estate, it’s a great way to protect your investments from the negative side of inflation.
Diversify Your Portfolio
Last but not least, investing in real estate is a great way to diversify your investment portfolio. We’ve all heard about the importance of diversifying. This way, one change in the stock market won’t obliterate your entire portfolio.
Basically, the idea here is to avoid putting all your eggs in one basket. Instead, it’s a good idea to put some of your investment funds into bonds, some into stocks, and some (we recommend most) into real estate.
Since, as we talked about before, real estate can withstand the negative impacts of inflation, it’s a super safe bet when it comes to investing in your financial future.
The truth though, is that most financial advisors won’t advise you to invest in real estate because they can’t make a commission on the sale of the property.
The Top 6 Benefits of Investing in Real Estate
There you have it: the top 6 benefits of investing in real estate. Now that you’ve read through these ideas, it’s time to consider your particular situation.
Are you ready to take the plunge into the world of real estate investing? If so, great. If not, what’s standing in your way?
The sooner you act, the better.
Want to learn more? Check out our blog for other tips and tricks.
Interesting related article: “What is an investment?”