Investing one's hard-earned money is the wise thing to do in these specifically unstable and unpredictable times. Yes, putting it in the bank will do, but it won't earn enough to guarantee your future security. And why do people invest? The reasons, such as safety, income, and capital growth, might be your top motivators for investing your money like real estate.
The correct balance among the three (safety, income, and capital) will ensure an individual's financial success. Thus, there are many investments one can choose from, and people may invest in stocks, arts, corporate bonds, gold, real estate, and recently, cryptocurrency. Among the above-mentioned, real estate seems to be the most lucrative.
In 2020 an average home in the United States sold for USD$408,800, and there were about 820,000 housing units sold, the largest figure since 2018.
There are many benefits to gain by investing in real estate. If you plan on buying multiple properties, you should know the benefits you will eventually reap from it. Here are some of them:
- 1. Steady Flow Of Income
Properties you buy for others to rent every month are a great passive income source. It's a sure source of cash as you expect monthly payments from your renters. Having a steady flow of income gives you a sense of security and peace of mind knowing that you won’t have to worry about finances as you have a sure source coming every month.
- 2. Will Build Your Equity
When you have built a great deal of equity for your properties, you'll have a higher Return of Investment (ROI) when you're able to sell your home. And if you need a large amount of money in the future, say, to start a business, your real estate equity can be a sound basis for a line of credit. Lenders use your home equity to compute the amount of loan they can grant, so you won't have difficulty securing loans for anything.
Simply put, equity is the difference between the total value of your home and the amount you owe the lender, which is most likely the bank that holds your mortgage. Building your equity is another excellent benefit of real estate.
- 3. Will Grow Your Capital
Capital in business is the measurement of wealth and a resource for increasing wealth. And there are many capital structures, including equity capital, working capital, and debt capital. Real estate is an excellent basis for improving one's capital. And eventually, this becomes an individual's net worth.
In real estate investment, it's essential to grow your capital so you can procure more assets for your portfolio. To increase them, you may rely on private lenders, peer-to-peer loans, home equity loans, and home equity lines of credit (HELOC).
- 4. Gives You Tax Advantages
Owning real estate properties can have many tax advantages, including tax breaks and significant deductions, and one way is through depreciation. The wear and tear of a property are expected. So, to compensate for this, the value of the breakdown of a property is considered a net loss and computed through a depreciation method called MACRS or a modified accelerated cost recovery system.
Another tax break is through the Self-employment/FICA tax or federal insurance contributions act. Any income relating to the rental of property is immune to the 15.3% social security and Medicare income taxes since, as an owner of a rental, you are considered to be self-employed.
Interestingly, if you invest in the country's most rural and financially distressed areas, you can have a tax incentive in these so-called Opportunity Zones.
- 5. Portfolio Diversification
Investors use real estate to diversify their investment portfolio because real estate poses a reduced risk in terms of the security of investments. Across the United States and European markets, portfolio diversification through real estate reduces risk by 60%-94%.
Investors choose primarily industrial and commercial real estate as longer lease lengths to cover a more extended cash flow period. The expenses for these real estate types are meagre as the tenants cover most of the costs, including the property's upkeep.
Every investor knows not to place their investments in one type. Diversification spreads investors' risks, so the lousy outcome doesn't necessarily affect the others. And real estate is one of the best types of investment to place your money on.
- 6. Serves As An Inflation Hedge
As part of their investment portfolio, those who have real estate may rest a little easily when the economy dips and inflation soars. Even in inflation, real estate tends to maintain and increase its value. Since most leases, especially for commercial and industrial properties, cover a contract with a duration of five years or more, at times, provision for an increase in rates is stipulated. Most of the time, property expenses are also passed on to tenants, limiting the property owners' costs.
Inflation also occurs alongside economic growth. Because of the increase in demand, people have more money to spend, and in effect, property owners may be able to increase rates accordingly.
Real estate has been an attractive investment for many people, and with all the mentioned benefits, you'll be likely to earn more when you invest in multiple properties. And with all the benefits of real estate investment, you may have a successful journey towards increasing your money.