Real estate is one major investment strategy investors use to generate a steady source of income. A savvy investor can welcome substantial returns into their life with wise investments.
Aside from the potential for attractive returns, what are the biggest real estate investment benefits? When you make your first real estate investment, you’ll find a flow of cash and even surprising tax advantages.
If you’re looking for a steady source of extra income, think about investing in real estate. Continue reading this article for more information about the benefits of investing in real estate.
With benefits like these, who could resist adding a property to their portfolio?
Celebrate Diversity in Your Portfolio
One of the major pieces of advice you’ll receive of any financial advisor is to diversify your portfolio. Diversification is a strategy by which you mitigate investment risks.
There are a number of investors who focus primarily on real estate. Some of these investors have been able to generate great wealth.
Some investors believe real estate offers a tangible asset to add to your portfolio. While real estate is often considered high risk, you can find lower-risk opportunities.
For example, you might invest in real estate investment trusts (REIT). These funds allow you, along with other small investors, to buy shares in real estate portfolios with a variety of properties.
Rental Income
If you decide to rent out your properties, you’ll generate a rental income. Of course, there are aspects to this you’ll need to think about.
Being a landlord comes with its share of legal challenges. For example, your rental agreements need to protect your rights as well as your tenants’ rights.
Once you get the hang of it, your rental properties will work for you. You can start generating income while you sleep. This income may cover your mortgage on the property, regular expenses, and more.
Renting out properties gives you more freedom to enjoy the things you love without spending hours a day in an office.
Real Estate Accrues Value Over Time
If you can hold onto your properties for a long period of time, you may notice steady rises in property value. Depending on how long you hold onto a property, you may experience dramatic rises and falls.
Housing bubbles are a natural part of the market cycles. However, the market always recovers from bubbles that lead properties to fall in value.
If you manage your properties wisely, you can generate an income from rent and sell the property later on. If you decide to live in your investment properties, you can still make a profit when you sell.
Better Returns Than the Stock Market
Real estate investments are often considered less volatile than stock market investments. In the stock market, the risk remains constant over time.
With real estate, the value of your property improves with the market. As a result, you gain equity as long as you pay your mortgage on time.
In addition, the property will always have value in the market. This isn’t true for stock market investments.
When you invest in a company, the possibility of bankruptcy always remains. You could see a stock value drop to zero in time. When this happens, investors lose their entire investment.
However, you’ll never see a property value drop to zero. This means you’ll never lose your entire investment.
The Tax Benefits
Owning investment properties offers certain tax benefits for you. When you file your tax return, you can take deductions for the following:
- Mortgage interest
- Operating expenses and costs
- Property taxes
- Cost of insurance
- Depreciation
If you have an investment property, you’ll need to seek the help of an accountant. This will always help you take advantage of any possible deductions.
Saving for Retirement
For some, buying a house is an investment made to prepare for retirement. Some individuals and couples don’t plan to die in the home in which they raise their families.
This could be a wise retirement plan if you buy the right property at the right time. However, there’s always a possibility it could work out in your disfavor.
Before you make a real estate investment for retirement, you’ll need to do your market research.
Another retirement strategy includes renting out investment properties. For some, this is a means of generating supplemental income during retirement.
Even if you have enough saved, you’ll have extra income to enjoy the things you love most in your older years.
Inflation Hedging
There is a positive relationship between GDP growth and the demand for real estate.
To understand what this means, you need to understand inflation. As we create more money, the value of the dollar goes down. As a result, prices for goods and services go up.
When people say real estate hedges against inflation, they mean this:
Real estate responds in proportion to inflation. This means landlords and real investors can actually take advantage of inflation.
As the economy grows and expands over time, rents and property values follow.
While your mortgage payments remain stable, you can charge more for rent and sell the property for more when you’re ready.
Because the effects of inflation transfer to tenants, you mitigate your inflation burden. At the same time, your investment capital gains value as a result of inflation.
When you invest in real estate, you actually come out on the winning side of inflation.
Benefits of Investing in Real Estate: The Only Safe Investment?
Because real estate offers a tangible investment to hedge against inflation, some believe it’s the only safe investment. Real estate can be a great way for individuals and couple to prepare for retirement and generate supplemental income.
While you need a lot of capital to start investing in real estate, the benefits of investing will be great.
Whether you’re looking to make extra cash or save for retirement, real estate is a brilliant strategy to choose.
