Do you want to start with real estate investing? Here’s why you should go for it.
Are you planning on saving for retirement? Or maybe to earn a few additional bucks from time to time? Investing in something might be a good idea to earn some passive income. But, how can you know what is the best investment for you? Well, if you start real estate investing, you can’t go wrong.
Real estate investment has a different approach compared to investors who rely on the stock market. This is because real estate only continues to appreciate over years, which will not only cover you financially, but this might also give you something to pass on to your children.
Real estate investment has plenty of advantages over investing in stocks, mutual funds, or bonds. It offers a fairly predictable cash flow, appreciates in value, provides a high return, and offers equity growth. If this isn’t enough, here are ten reasons why real estate investing is the best investing:
1. Real Estate Investing Has a Predictable Cash Flow
Cash flow is the income derived from the investment once all operating expenses, including mortgage payments, have been made. Overall, if you’ve made a good real estate investment, you can expect a cash flow of 6% or higher.
2. It Appreciates in Value
According to the National Association of Realtors, ever since 1968, the appreciation for real estate is around 6% per year. This includes the crisis that started in 2007.
3. It Can Be Leveraged
Leverage is likely the biggest advantage of real estate. This means it uses borrowed capital to increase the return of an investment. The leverage builds up when a mortgage is used to reduce the amount of capital required to purchase a property. Once you build up equity, you can leverage that investment for cash in two ways. You can secure a second loan, or refinance the original loan and increase equity. This gives you the money you need to purchase another property.
4. It Provides Equity Buildup
Most of the time, people purchase a small down payment with a 20% down payment and then take the mortgage that you’ll have to pay out over time. Over time, as you pay the principal of the mortgage, you build up equity.
5. It’s Improvable
Real estate investing is unique in that it’s improvable. This is a tangible asset made of brick, concrete, wood, and glass, and you can improve its value with some work. Whether you want to upgrade your property’s entire structure or simply make things look prettier, the principle stays the same. With some improvements, you can increase the value of your investment.
6. It’s Tax Deductible
When you invest in real estate, you can get some deductions for the expenses that come with owning a real estate. This includes upkeep, maintenance, improvements, even some of the mortgage interests. These tax deductions can help you increase the income, while also reducing taxes.
7. It’s Depreciable
Depreciation is a non-cash expense allowed by tax code that depreciates the value of your property over time. But the truth is that the investment property actually appreciates because of the depreciation deduction, so you can generate a larger cash flow while reporting a lower income and reducing your taxes that way. This also increases your return.
8. It Has a Lower Tax Rate
If you sell your real estate investment after a year, the gain is subject to capital tax rates. Depending on your individual tax bracket, this is generally 15% or 20%, which is less than most personal tax brackets.
9. It Has Deferrable Gains
The 1031 exchange allows the gains on the sale of the investment property to be transferred from the property you’re selling to purchasing a new property. In other words, you can defer the payment of any tax if you use it to sell a new property.
10. Real Estate Investing Is Easy
Compared to investing in stocks, real estate is quite straightforward and most people can understand it and join in. The properties are easy to purchase, financing is simple, and tax advantages are easy to use. It’s a great choice for most average Americans who are simply looking for a way to increase their savings.