Real Estate investments are among the safest investments in a portfolio since they are under the category of asset investments with a physical substance that depreciates over time.
Aside from generating passive income through the purchased property, it is also a great long-term investment since its value can increase over time. Moreover, you can include real estate investments in your overall asset management plan to increase your wealth.
But to do so, you have to make sure that you are prepared to invest in this industry.
In the beginning, you might have to spend quite a lot of money for upfront expenses to start a real estate investment, i.e., such as purchasing apartments, houses, lands, etc.
Reasons “Why it is a good decision to invest in the Real Estate Industry.”
Cash Flow Is Predictable
Cash flow means the net balance of cash from an investment after all the mortgage payments and operating costs have been paid. When you make a good investment in real estate, you can have a 6% or higher cash flow.
The Value’s Worth Increases
Corresponding to the National Association of Realtors, the appreciation levels in real estate have been 6% each year since the late 1960s. These statistics include the economy’s downturn at the start of 2007.
Real Estate Gives You an Edge
With Real estate investments, you earn the advantage of leveraging. How? Using the money you borrowed, you get a leverage advantage since you can use it as investment capital to gain additional funds from potential ROI (return of investment). Furthermore, you can use the mortgage to lessen the initial cost of the investment for buying a property. The yearly return you can get from a $200,000 property with a net cash flow of $20,000 paid in cash is 10%
Let’s say you have a loan of $150,000 which has 5% interest and 30 years’ amortization. However, 75% of the money you paid to buy the property is from a loan. Even though you factor in the expenses of paying the mortgage, the return is 22% yearly.
After you have created equity in a property, you can have an edge in the cash you invested in and refinance your original loan to increase equity or secure another loan. As a result, you have money to purchase another property.
Equity Builds Up
You can purchase several properties with a small down payment as long as the balance is given through debt financing by a lender. In the long run, the capital of the mortgage will slowly be paid off and becomes more rapid by the end of the amortization period.
Real Estate Can Be Renovated thus Improve
One of the attractive and unique benefits of a real estate property is that it can be renovated. Real estate properties are tangible because they use brick, concrete, wood, and glass when build. Therefore, you can make improvements in the value of the property through renovation.
Regardless of whether the repairs are aesthetic or structural, the principle is the same. You can earn more since you can choose what you want to enhance.
Real Estate Corresponds with Retirement
When you purchase real estate, the principal reduction on a mortgage and cash flow is lower. Once payments are made on the mortgage, the cash flow increases, and you can earn more over time if the property is a forced savings program. Therefore, real estate is an ideal investment for retirement because the cash flow increases as time pass by.
Tax Is Deductible
Different deductions are allowed for standard expenses incurred when you own real estate properties because of tax codes. Some of these expenses are maintenance, upkeep of the property, developments, and the interest payment for the mortgage. These deductions can compensate for your income and lessen the total tax payment.
Real Estate Depreciates
Depreciation is a non-cash cost allowed by tax codes that depreciates your investment property’s value over time; thus, the value of your investment increases. The decrease in depreciation provides a real estate investor with a better cash flow and reports a low earning for tax purposes. Subsequently, you get a higher ROI more than you expected.
Tax Rates Are Lower
After a year, the gain you earn from selling an investment property is subject to the tax rates from capital earnings. Depending on your tax bracket, it is usually 15% or 20%, which is typically lower than the personal tax bracket.
Real Estate Can Expand Your Portfolio
Real estate is a way to lessen your risks. A real estate property is more advantageous when you have invested a lot of money in other ventures. Many experts suggest expanding your portfolio in order not to lose everything at once in the case where the industry you have invested in goes down. Real estate is an ideal investment because it is much safer to place your money in that industry than other investment types.
Real Estate Helps Communities
Your real estate investment can help communities because you are helping the local economy by giving homes or temporary places to people. When you invest in affordable homes and maintain and develop them, you can help people by giving them a comfortable shelter.
Many people cannot afford to have a house of their own because they cannot have the ability to pay even the smallest down payment. Therefore, you can help the community when you purchase 1 or 2 abandoned houses and develop them.