10 Importance of Investing In Real Estate
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| Importance of Investing In Real Estate |
Real estate offers many great advantages. If a piece of real estate is purchased at the right price, is financed well, is in a good area and is well managed - then some of the advantages of real estate are the following:
1. Control
1. Control
One major advantage of real estate investment is that it offers a great deal control. Many people feel investing is risky because they do not have control over the asset in which they invest. There is very little control over savings, stocks, bonds and mutual funds.
People worry about job security because they lack control over their job. Few employees have any control over the ownership of the company, how much they earn, how much they are taxed or the future of their job.
2. Cash flow
Checks come in every month.
3. Leverage
3. Leverage
Bankers will line up to lend you money for investing in property. Ask your banker if he or she will lend you money to buy mutual funds.
4. Amortization
4. Amortization
This is simply the gradual reduction of an amount over time. Tenants pay off the debt owed on your house over a time period without you working hard to pay off the debt.
5. Depreciation
5. Depreciation
The government offers tax breaks for real estate because it goes down in value. Real estate can go down in value, but it tends not to. In reality, the reason why governments offer depreciation incentives is because real estate investors provide housing.
Related: 4 Streams of Income to Look Out For When Purchasing a Real Property
6. Creativity
Related: 4 Streams of Income to Look Out For When Purchasing a Real Property
6. Creativity
The value of the property improves through creativity. For example, if I buy a piece of raw land, I can change the zoning. Or I can buy an old house and fix it up. Or I can convert an apartment house to condominiums.
7. Expandability
7. Expandability
Once you learn how to buy single-family homes, you can expand it into multiple units.
8. Predictability
8. Predictability
It takes about a year after purchase to stabilize an apartment complex. After a year, the management is able to get rid of bad tenants, make the cosmetic repairs that good tenants want, and you can sometimes, slowly, raise the rents. Once a building is stabilized, the checks come in every month like clockwork. This certainly beats watching the ups and downs of the stock market -- feeling good when prices go up and feeling bad when prices come down. The key to good real estate is great management.
The reason many stock, bond and mutual fund investors do not do well in real estate is because they are either poor managers or do not want to be managers. Since management of real estate is the key to success, some of the best investment opportunities are buying properties that are owned by poor managers.
9. Tax-deferred Money
9. Tax-deferred Money
One of the great advantages of real estate is tax-deferred money. There are many ways a real estate investor can avoid paying taxes ever - legally. One way is known as the 1031 tax-deferred exchange. This tax-deferred treatment is not available for people who invest in stocks, bonds and mutual funds. You'd be surprised how fast you can get rich if you don't have to pay taxes.
10. Appreciation
Because the currency is going down in value, real estate tends to increase in value. Also, as our population increases, demand increases, which also drives up prices. Most investors invest for appreciation (capital gains).
In the stock market, most people invest low hoping to sell high. This is investing for capital gains. In real estate, these investors are known as flippers. Flippers also buy low and hope to sell high. The problem with a capital gains strategy is that the strategy generally only works in an up-trending market. If the market trends down also known as a bear market, many paper-asset investors and flippers are toast.
In the stock market, most people invest low hoping to sell high. This is investing for capital gains. In real estate, these investors are known as flippers. Flippers also buy low and hope to sell high. The problem with a capital gains strategy is that the strategy generally only works in an up-trending market. If the market trends down also known as a bear market, many paper-asset investors and flippers are toast.
Investing for cash flow is better than investing for capital gains in real estate because the tax laws favor the cash-flow investor.
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