5 Reasons To Invest In Real Estate

Whether it’s retirement goals or bucket list ideas, thinking about the future is something we all do. Almost all our dreams take one thing to make them a reality, money. When we are in our 20’s and 30’s it’s often hard to think about our older (hopefully wiser) future selves. And some of our current monetary statics prove this exact point. According to the Board of Governors of the Federal Reserve System, as of 2019, the average retirement savings of American households was $65,000. However, according to a survey conducted by Charles Schwab, most Americans believe they need $1.7 million to retire comfortably. You do not need to be a math whiz to recognize the huge disparity between what most Americans have ($65,000) and what most Americans “need” (1.7 million) to retire.

Finding financial investments that work for you is key. As of late, it’s hard to feel overly confident with trends of the stock market. Many millennials have all too recent memories of wathcing their granparents and parents lose huge chunks of their stocks during the great recession. So, what other stable investment options are out there? Ideas vary depending on who you talk to or what you read. Many swear that crypto is the key and others prefer to stockpile precious metals such as gold and silver. Don’t misunderstand, having a diversified investment portfolio is well-advised, but many realtors will quickly disclose that discussing the value of real esate investments is one of their favorite things to do. Financial writer Jonathan Yates recently wrote an article that stated over the last 200 years, about 90 percent of the world’s millionaires have been created by investing in real estate. So, what makes investing in real estate such a good idea—especially in our current market?

  1. Stability
    The great recession taught us many things, one being the importance of finding assets that are stable and grow steadily in value. Real estate is a proven commodity. Though there may be down years, real estate, in general, tends to appreciate over the long term. Regardless of how tempting selling may seem, the key is holding each property indefinitely. The moment a rental property is paid off, it generates consistent cash flow and income.
  2. Appreciation and Inflation Hedge
    Real estate investors make money in a few different ways: rental income, profits generated by property-dependent business activity, and appreciation. The average home prices in the United States continue to rise and will likely stay on that upward projectory. The appreciation of real estate is what enables investors to make a profit when they decide to sell. The ability to raise the rental price is also a product of appreciation.
  3. Tax Breaks and Deductions
    As a real estate investor, you are eligible to take advantage of tax write-offs. Owning a home and renting it out categorizes you as a landlord, which also classifies you as a business owner. You want to make sure that you are writing off the correct expenses. The following expenses are typically what you’re able to consider writing-off:

    -The mortgage interest paid on the loan
    -Origination points paid on the loan
    -Maintenance expenses
    -Depreciation (spread out over 27.5 years)
    -Real estate taxes, homeowner’s insurance, and HOA dues

    It is always incredibly wise to discuss any tax-related issues or questions with your accountant. You want to make sure that you are writing off the correct expenses. Investing in real estate is a benefit because when you invest in stocks and bonds, you’re only allowed to write off capital losses if you sell for less than what you originally paid.
  4. Cash Flow
    After the mortgage payment has been made and the operating expenses have been deducted, the money that is left over is considered your cash flow. A key benefit to investing in real estate is the ability to generate cash flow. Typically, your real estate cash flow only increases over time. As you build more equity in your home by paying down the mortgage you get to keep more of the green! Once your home is completely paid off and mortgage-free (outside of operating expenses) that monthly rent check is yours.
  5. Family Wealth
    The goal of a serious investor is to select and finance assets that only build wealth. Passing real estate wealth from one generation to the next can be accomplished in a few different ways. Setting up a family trust is a strategy that the wealthy use all the time. Upon the death of the grantor (usually a parent), ownership automatically is transferred through the trust to the grantee (usually the children). There are numerous financial benefits to choosing to pass the ownership of properties this way. However, an attorney will help lawfully guide you through the available options and procedures available to your particular situation.

Conclusion

There are so many ways to “save for the future”—pensions, 401ks, IRAs, high yield savings accounts, mutual funds, and the list goes on and on. Even so, the benefits of investing in real estate are numerous. Learning how to choose investments that hedge against inflation is tremendously relevant to our current economic situation. Our country is experiencing inflation unlike we’ve seen in decades. Inflation simply means our dollar’s purchasing power is less than it used to be—we cannot buy the same amount of stuff we once were able to purchase. Because real estate and rental prices tend to keep up with inflation, putting our hard-earned money into physical properties instead of say, the stock market, tends to make a lot of sense. Spend time doing your own research and consider reaching out to a financial advisor and/or an attorney. Additionally, find a realtor that understands your real estate goals and vision and who is willing to work hard for you. At the end of the day, the financial goal of life is to be better off tomorrow than we were yesterday. And though there are numerous ways to accomplish this goal, real estate tends to always find its way to the top of the wealth-growing list. 

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