6 Reasons Why Real Estate is the Best Investment

If you’re thinking about investing in real estate, you’re about to embark on one of the best investment journeys of your lifetime.

Residential rentals offer benefits you won’t find with other types of investments. These benefits include:

Cash Flow

Unlike other investment vehicles, real estate investing enables you to generate cash flow every month by your tenants paying rent. You can then use this money to pay off your mortgage if you use financing to purchase your investment. Once the mortgage is paid off, the full cash amount goes directly into your pocket. If you used cash to buy your investment outright, you can use the monthly cash produced by your investment right away to fulfill your financial goals, create another stream of revenue, or re-invest it to build a powerful portfolio of multiple income-generating properties.

Wealth Accumulation  

When you use leverage to purchase an investment property, you are essentially using “other people’s money” to build your wealth. Additionally, you don’t need to have a large initial investment if you pay in full cash, only around 20% for the down payment in comparison to the full price of the home. As the home appreciates over the years and tenants pay off the loan, you accumulate equity on your property and further build your wealth.

A Hedge against Inflation

When you invest in residential rentals, you own a tangible asset that can provide a hedge against inflation. Rents typically increase 2-3% per year and properties increase in value through appreciation. Therefore, this yields an asset that provides monthly cash flow and grows in value over time without being subjected to large economic trends like other asset classes.

Diversification

With the recent volatility of the stock market, it’s no wonder why people are turning towards real estate. Residential rentals are a non-traditional asset class that isn’t tied to the stock market. Not only will you be able to add an extra layer of diversity to your portfolio, but you’ll still be able to earn steady cash flow even during a down market.

Tax Advantages

Best of all, some great tax advantages come with owning real estate. You may be able to write off expenses regarding the maintenance of the property, interest from financing, insurance, and several other items associated with the property.

As the business owner, you can often write off the following expenses:

  • The mortgage interest paid on the loan
  • Origination points paid on the loan
  • Maintenance expenses       
  • Depreciation (spread out over 27.5 years)
  • Real estate taxes, homeowner’s insurance, and HOA dues

There Are Many Ways to Invest in Real Estate

If buying real estate and renting it out is too stressful for you, there are many other ways to invest in real estate, including:

  • Buy an undervalued property, fix it up, and flip it (fix and flip)
  • Be a wholesaler working as the middleman between motivated sellers and a network of buyers.
  • Use house hacking, which means you buy a 1 – 4-unit property, live in one unit, and rent out the others using the rental cash flow to cover your mortgage.
  • Invest in a Real Estate Investment Trust

CONCLUSION

Real estate is a great way to diversify your investment portfolio. You can offset the risk of high-risk investments, such as money invested in the stock market. In addition, if you invest in rental homes, you can enjoy the cash flow while the home appreciates, giving you significant capital gains when you need it most – in retirement.

Real estate can be a liquid asset if you need it to be. Don’t invest money you’d need immediately, but know that any money you have invested in properties you can usually liquidate within a few months if required.

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