Real estate investment easily takes the gold status among all other investment vehicles. Believe it or not, real estate investing is the go-to technique used by 90% of all millionaires to increase their income.
What’s more, whether you want to generate passive income and save up for retirement or create regular cash flow through a primary income source, real estate investing caters to every need.
That probably makes you think, what makes this investment module the most versatile one there is? I’ve compiled a list of real estate investing benefits to provide a detailed answer to your question.
1. Provides Easy Passive Income
Even if you’re an established professional, a 9-5 job never pays for anything more than your monthly bills. To maximize your income and save up for your future, you’ll need a legit passive income, and with real estate investing, it is as passive as it gets.
There are many techniques of real estate investing. While buying worn-out properties for refurbishment or rental properties for income might require you to work actively, other areas do not.
These include spending your money on REITs to get monthly dividends or investing in private REITs through real estate crowdfunding programs. All you have to do is part with your money and watch your wealth grow.
Some crowdfunding platforms even offer auto-investing programs where they reinvest your dividends in profitable properties to increase your wealth. The best part is, your passive income is only taxed at 20%, so you’ll be keeping most of it compared to your ordinary income taxed at 37%.
2. Appreciates Over Time
Besides generating regular profits from your real estate investment, you will also see growth in your capital over time. That’s because if you choose your property well, it tends to appreciate over time in value.
This can occur due to several factors, including the improvement of the location or the property itself. Some investors even turn this appreciation factor into a business by buying run-down properties, improving them, and then selling them for a profit. In plain terms, it’s also known as real estate flipping.
Yes, sometimes disastrous property choices can make you lose your entire capital, but your investment is safe most of the time.
That’s because the property is considered an asset that always has two types of value, one from the land, and another from the structures built on it, so you’ll never go completely into a loss.
3. Unique Tax Benefits
Paying taxes is like cooking for your family, you know it’s necessary, but you don’t enjoy it all the time. In that case, who wouldn’t like some tax benefits when it comes to investments?
The nature of real estate investing makes it essential for investors to get some write-offs for the risk they’re facing.
You heard that right. The main reason real estate investors get tax write-offs is because they’re investing in a depreciating asset.
While most properties tend to appreciate quickly over time, they’re prone to depreciation as well. That's mainly because the property is getting older every day. This means you get a taxation write-off just for owning the property.
Similarly, there’s no self-employment taxation on rental income. Besides that, you can write-off the expenses you face while owning the property, including maintenance, upgrades, and renovation.
4. Steady Cash Flow
If you place your money into other investment vehicles, the monthly profit you receive will remain insignificant once you pay your bills. However, with real estate investing, you’ll generate a steady cash flow.
Cash flow is the income surplus left after you’ve paid your essentials such as the mortgage and other property-owning expenses. This means once you’ve invested your time and money into the property, all you have to do is reap the benefits for years to come.
You can use this time to build your own business, focus on your career, and even spend time with your family. At the same time, you can produce ample cash flow to meet your needs.
The good news is, as you pay off your mortgage, your cash flow will increase over time.
5. You Can Use it As Leverage
After you acquire a real estate property, you can use your asset as leverage to further increase your income. Leverage means using your borrowed capital to buy other assets that help increase your revenue.
For example, if you have a property worth $100,000, you can leverage this investment to purchase two to three properties worth the same amount by paying the down payment only.
After that, you can use the profits you generate from your property to pay the interest on your loans. Eventually, you'll own the properties you bought on loan.
That does mean some extra expenses in mortgages for you. But, you’ll earn more in the form of cash returns due to the low down payment.
Besides that, another way of using your real estate income as leverage is by investing in a more stable and larger property along with other investors. Each of you can pool in your money and reap the benefits together.
But remember to conduct complete due diligence when using leverage. Or else, you might end up putting your holdings at risk.
6. Helps Build Equity
The next step to using leverage from your real estate investments is building equity. Simply enough, once you purchase a valuable rental property and earn monthly income through it, you’re only using your tenant’s money to buy more equity.
The rental income you generate can be used to pay off the loans you took using your property as leverage. This means you don’t have to deposit another penny, and you’ll keep building equity on the side.
For example, you buy a property worth $100,000 on a mortgage. While you might be seemingly in debt, you’re slowly paying it off using your tenants’ payments.
A few years later, your mortgage will go down to $0, which will result in building equity. The process is slow, but it will grow your wealth exponentially down the road.
7. Protects Against Inflation
Inflation is when the value of money decreases in an economy, causing prices to rise. Naturally, this means it takes away considerable value from investments as well.
Let’s say you gained about 5.5% from your stock portfolio last year. Taking the inflation rate of 1.6% into account, your profit boils down to only 3.9%. That’s because inflation affected the purchasing power of your money.
On the other hand, if you invest in real estate rather than stocks, you’ll see that your properties’ prices go up with the other items due to inflation.
On the contrary, your fixed-price mortgage won’t go up at all. This eventually means your payable amount stays the same while the value of your asset increases.
Additionally, increasing costs of living hike up your monthly cash flow in rental payments as well. So, inflation is actually a win-win for real estate investors.
8. Portfolio Diversification
By investing in real estate, you can reduce the risk of your overall investment portfolio. If you’ve invested in multiple investment vehicles, including bonds and stocks, adding a real estate investment will lower your portfolio’s volatility.
This gives you a higher return rate than your risk, which means you can enjoy safe returns. Similarly, some real estate investors choose to diversify their portfolio within the real estate world.
The sector provides enough diversification options in the form of multiple tenants and different real estate types. So, even if you invest all your money in real estate, you won’t be putting all your eggs in one basket.
Wrapping my list up, although real estate investing has lots of benefits, it requires enormous capital to begin with. If you think the benefits are enticing enough to stretch your boundaries, you could purchase REITs or ETFs to own properties partially and gain monthly income.
Whatever you do, make sure to conduct proper research and thorough vetting of the projects before you part with your hard-earned money.
Author Bio: Financial Wolves is a blog focused on helping you make more money to achieve financial freedom. After repaying student loans, I’ve shifted my focus to make more money from side hustles, real estate, freelancing, and the online economy. Follow us on Pinterest, YouTube, Twitter, and Facebook.