Thursday, August 25, 2022 / by Ana Baldner
Real Estate has been voted as being Americans favorite investment for the long term for the fourth year in a row. Many news outlets are pushing out headlines that focus on the slowing of the real estate market, but no one is talking about the massive investment opportunities that we are seeing in front of us.
It's important to diversify your investments as a whole. Having all your eggs in one basket makes it more likely that you could face a total loss. Spreading your savings across different types of investments can give you financial security.
There are 8 major reasons that real estate is a good investment to choose
1. You can force appreciation
One reason the stock market appears daunting to many people is the uncertainty. You put your money in the market, and you have no power in the result. The best part about real estate is that you can have a hand in your asset's appreciation in the form of renovations and repairs.
Major renovations such as adding a room or completing a basement will add more value, but even repairs on a small scale or cosmetic upgrades can drastically affect the value of your home. Consult an agent to find out what renovations would be the most beneficial for your home and market.
Also keep in mind that real estate appreciates naturally. On average it appreciates 3%-5% on average with no effort from you, except a standard maintenance of the home.
Real estate is special because there aren't many types of investments that allow you to invest in assets that are worth more than you have in your pocket. When looking to invest in the stock market, if you have $10,000, you can only obtain $10,000 worth of investment. Real estate is a different game, you can put down a fraction of a home and invest in it. If you have $10,000 to invest chances, are you can find a home for $100,000 and take a loan to finance the rest. As you pay it down you hold more of the investment and increase your rate of return.
3.Regular cash flow
Another plus of real estate investments is the possibility to regular cash flow and increase your profits on top of natural appreciation with a monthly rental income. This can even cover the cost of your mortgage, making your asset appreciate and be paid off by a tenant instead of you. \
4. Financially secure
The financial security of the real estate market is one of the best aspects of the investment. When taking a gamble in the stock market, nothing is for certain. When you invest long term into real estate, you know that your asset is appreciating. There may be bumps and slight losses in value on a small scale but when looking at the long-term value of the housing market, it bounces back and ascends.
5. There are many methods to investment
The process of buying and renting out units may be stressful for some. Thankfully, this isn't the only way to invest in the market. Other methods include buying an undervalued property, fixing and flipping it to sell or house hacking by purchasing a property with multiple units, living in one and renting out the others to cover your mortgage.
6. You can pass it down
A very attractive quality of real estate is the opportunity to pass the asset down and create some generational wealth. You are able to give your heirs an income producing asset that is also appreciating. They can either continue to use this as a second production of income through tenants or sell it and cash in on the profits.
7. Use equity to increase your portfolio
Another benefit of owning real estate investments is the opportunity to grow. If you have 75,000 in equity on a home, you can cash it out and use it as a down payment on your next property. Then you can own two income producing properties.
8. Tax benefits
Real estate investors can also take advantage of tax-write offs. Your investment means that you are a business owner when you become a landlord. You could write off expenses such as mortgage interest paid on your loan, maintenance expenses, and real estate taxes, homeowners' insurance and HOA dues. However, make sure you reach out to your tax advisor before assuming you can write anything off.
There are some downsides to real estate investments. Knowing the good and the bad will help you make the right choice for yourself. As with any investment, there isn't a 100% guarantee in the market. The demand for housing in any area can change due to external factors. However, it's important to keep in mind that real estate always bounces back. Housing is something people will always need. Another downside is that being a landlord is not an easy task to take on. From dealing with tenants to getting financing for your purchase is more difficult as lenders are not as generous with financing options. They often have stricter requirements and will look at your credit history much more closely than owner-occupied purchases.
Becoming informed about the different ways you can invest your money is the smartest plan of action. Reach out to your real estate agent and find what homes in your area would be a smart investment.