With the economy being rather unstable of late, many are now thinking about investing early to safeguard financial stability in the future. Among the investment opportunities available, real estate has garnered the most positive coverage. A survey released in July 2015 revealed that 27% of Americans or more than 1 in 4 respondents said that “real estate is the best investment” for long-term goals, followed by saving money (23%), investing in the stock market (17%), and bonds (5%). But, how can a real estate investment help you financially? In this post, we will show you the top reasons why investing in real estate can be the best financial move you can make in your life.
Leverage tax benefits
Imagine a business owner earning $100,000 and a rental property investor receiving $100,000, who get’s to keep more? Yes, it’s the rental property owner, due to there being plenty of rewards that come with it. In the United States, rental property owners receive plenty of benefits from the government. Apart from your cash flow that is not subject to self-employment tax, the government provides tax benefits and a lower tax rate for long-term profits.
There are also other benefits of becoming a real estate investor, such as:
- Low risk investment
- Doesn’t require a lot of time to manage
- Receives a fair cash-on-cash return
Inflation Becomes Your Friend
Inflation is one of the reasons why many are afraid to invest, as it gives uncertainty to investors regarding the effects of future inflation on their savings. But, little do many know that it can actually be their greatest advantage if they become a property owner. Inflation can actually help investors in raising their rent prices. Although your fixed mortgage will remain the same, inflation drives the cost of home construction higher which also drives up the cost of rent. Since growth in population creates higher demand for housing, it drives up prices for rent if the supply cannot keep up with the demand. A summary by FXCM noted that inflation is controlled by the central banks and governments through various methods, including fixed exchange rates, price controls, and monetary policy.
Easy to use OPM
When it comes to real estate investment, most people use other people’s money (OPM) to cover the initial cost up to the monthly payments of the investment. Banks and financial institutions offer fewer requirements to those borrowers planning to invest in real estate, as it has shown greater returns. It is common that investors go for mortgages as they can pay it back later on, which often runs for about thirty years. There is also an option to structure deals, so that no money comes out of the pocket, yet they are able to still receive all the benefits that come with it. Although mortgage comes with interest, each payment gets you closer to owning the property in the long run. Additionally, by building equity through each payment, you are building your wealth in the physical form.
Real estate appreciation is close
Based on previous years, we learned that prices of real estate don’t always go up. In fact, many investors claim they lost more than they expected, leaving them with no choice but to sell. But, in terms of long-term goals, giving up the investment is usually the wrong choice. Since 2012, the industry has seen significant growth in value. Prices will rebound in time, maybe not as intense as before, but experts predict it will eventually. Being a tangible asset, real estate protects investors from the effects of inflation and other economical turmoil.
There are plenty of reasons why you should invest in real estate, but there are also various risks that every investor, especially new ones, should prepare for. Just like any investments, you must be prepared for what’s ahead by setting your goals, expectations, risks, and challenges, apart from the many benefits. Why do you think real estate is the best investment? Share your thoughts with us in the comments section below.