5 Reasons Why I Invest in Real Estate

When it comes to investing, there are a lot of options out there to choose from.  There are stocks, bonds, FOREX, cryptocurrency, precious metals, mutual funds, REITs, etc.  The list goes on and on.  There are a million ideas, products, assets, and companies out there for investors like you, looking to invest in the next big thing.  Don’t get me wrong, I spend a considerable amount of time searching for these great investments too, but a huge portion of my investment portfolio is invested in something tried and true: real estate.

But why do I choose real estate above gold, above stocks or cryptocurrencies? What makes it such a good investment? 

Rental properties are a great investment for many reasons. You can earn an excellent rate of return on your investment, receive favorable tax advantages and use leverage to build your wealth.  Another great thing about rental properties is the longer you own them, the better investment they become, due to the mortgages being paid down over time and the value of the property increasing over time.  Not to mention rental prices usually increase over time.  People who don’t take the time to learn about investing in rental properties are missing out on a great opportunity.

I put together the top five reasons why I like to invest in real estate. 

1. Leverage

One of the biggest advantages to real estate investment is using leverage to buy propertiesBanks and even private lenders will loan you money to pay for real estate investments.  Usually you’ll be asked to put up 20% of the purchase price as a down payment.  Because of this leverage you can buy a much more expensive investment than you could buy if you had to pay all cash.  For example, if you wanted to buy 25 shares of Amazon (AMZN) stock, which is currently trading at $3,057 a share, you would need $76,425 in cash for that investment.  In contrast, if you wanted to buy a $76,000 rental property, you would need a down payment of $15,200 (plus closing costs).  This use of leverage gives you the opportunity to place larger investments under your control.  What other investment will a bank help you finance it?

2. Cash Flow

For me, the main point of investing in real estate is to generate a steady stream of income.  In the example above I talked about buying 25 shares of Amazon stock.  Since Amazon doesn’t pay any dividends, if you were to buy this stock you wouldn’t receive any monthly payments on your Amazon investment.  You’d have to sit back and hope the price of the stock goes higher in order to see a return on your investment.  Your real estate investment on the other hand, would ideally have positive cash flow at the end of the month.  Meaning after you receive your rental payment and pay all expenses (mortgage payment, insurance, property manager, etc.), you would still have extra money left over to put in your pocket.  That’s your cash flow.

I own several rental properties and each one of them is creating an income stream from the tenants.  I plan to hold most of these properties as long term investments and once the mortgages are paid off, they’ll be cash flowing even more and set-up a nice income stream in retirement.

3. Tried and True

Real estate investing is one of the oldest kinds of investments. It’s not some risky startup venture. Pretty much everything that’s happening has been done before.  Real estate investment is, in a nutshell, a tried and true investment.  New investors have a wealth of information to draw on. They can go back and learn from the mistakes and successes of the experienced investors.  There have been countless of books, articles, and blog posts written on the subject. There’s no reinventing the wheel, no huge unseen, unknown risks.  Not to mention, there will always be a demand for real estate.  People will always have a need for shelter and thus need to lease or buy a home.

4. Tax Advantages

Real estate investors can take advantage of numerous tax breaks and deductions that can save money at tax time.  Since investing in real estate constitutes running a business, you can deduct the reasonable costs of owning, operating, and managing a property.  And since the cost of buying and improving an investment property can be depreciated over its useful life (27.5 years for residential properties), you benefit from decades of deductions that help lower your taxable income.  Another tax perk: you may be able to defer capital gains by using a 1031 exchange if you sell your property.

5. Freedom to Invest How You Want

One of the distinct advantages of real estate investment is just how self-directed it all is.  With some other investments you have no control or say-so.   You just hand over your money hope the investment does well so you can receive a payout.  With real estate investing, you are active in determining how well your investment does.  The decisions are in your hands—you aren’t at the mercy of someone else calling the shots with your money.  You get to pick the neighborhood, the type of house, the amount you want to charge for rent.  You get to determine how much you should spend in making improvements to the investment.

Does that make it risky? Sometimes. But it also makes it that much more rewarding when you can invest your money with transparency and total control.

When it comes to real estate investing, there is absolutely risk. It’s not a sure thing—no investment is.  But time and time again, real estate investing has proven itself to be one of the best ways to secure a strong financial footing for the future.

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