Why invest in real estate?
Mark Twain was onto something many years ago when he noted, “Buy land, they’re not making it anymore.”
What he realized is that real estate would always be in demand. There are always slowdowns in the industry, but people still need a place to live.
Investing in real estate makes a lot of sense for business owners. In many cases, it’s a better bet than the stock market. With the volatility of the stock market, real estate will keep you from eating TUMS from all of the stress.
Want to know more about why you should invest in real estate? Read on for eight reasons why real estate is good for you.
1. Passive Income Stream
Did you know that you can make money in real estate without being an agent? This investment will result in a steady passive income stream. That can give you a path toward financial freedom.
Passive income is money that you have coming in every month. When your passive income is greater than your expenses, you’re technically free to do whatever you want. You don’t have to work for anyone because you have financial freedom.
With real estate properties, your financial freedom comes from rental properties or properties that you buy distressed and flip at higher prices.
Some real instate investors prefer to do all the work themselves. That’s fine, but if you don’t want to do any work, you can always hire a property manager.
2. Market Cycles Are Predictable
Another advantage of real estate is that the market cycles are predictable. The real estate market tends to lag behind other economic indicators, so you can tell when it will take a slight downturn.
For example, when the Fed raises interest rates, home purchases slow down. That occurs because mortgages are more expensive with the rise in interest rates.
You can use these indicators to your advantage. If you know that people aren’t buying homes because of interest rates, they’re more likely to rent. That demand in rent could justify an increase in rent — which will bring you more money.
Likewise, you can predict when a good time to buy or sell a property is based on the local economy and past trends.
3. Tax Advantages of Investing in Real Estate
There are a lot of tax advantages in this industry. It’s almost as if the tax code was written by a real estate investor.
For starters, you can write off the amount of interest paid on the mortgage. You can also deduct the costs of maintaining the property, advertising for renters, and managing the property.
Real estate gains also have a lower tax rate. If you were to sell a business for a profit, that would be counted as income on your tax returns. That income would put you in a higher tax bracket.
In real estate, it’s different. Your real estate gains aren’t lumped in with your income. Instead, you’re taxed at a 15 percent to 20 percent rate.
As you probably know, the tax laws are always changing. You’ll want to check with a qualified tax accountant before making a decision.
4. You Can Defer Gains
Speaking of taxes, did you know that you don’t have to pay taxes on your gains if you buy another property?
Like rolling over a 401(k), you can roll over your real estate profits into another property through a 1031 Exchange. This is a complicated process, but it’s definitely worth the effort. Check this out if you want to discover more about 1031 Exchanges.
5. Real Estate Is All about the Long Game
Want to know what the main difference between investing in stocks and real estate is? The stock market is all about the short term. Everything depends on quarterly reports, which drives the value of the market.
Plus, the stock market is largely based on emotional reactions.
Real estate is just the opposite. It’s all about long term growth. You’ll rarely see huge drops or huge increases in value. These things happen in small increments over time.
6. Real Estate Gives You Leverage
Real estate can always be better. Yes, there’s the land, which may be like getting a property on Park Place in Monopoly. If you’ve played Monopoly, you know that the real value comes from the improvements on the property, such as homes and hotels.
Those improvements can always be optimized. You can buy an absolute dumpster of a home and transform it into a desirable property for a profit.
That profit can then be leveraged into another property. You can slowly build up a stable of properties that all bring you income every month.
7. Investment Stability
Why invest in real estate? It provides shelter from everything else that’s happening in the world. As noted earlier, the real estate market reacts to economic indicators more slowly than other investment vehicles.
It’s also stable because the changes in value happen over a longer period of time. As an investment, it can give you rental income for a very long period of time.
8. Real Estate Protects You from Inflation
The reason why real estate protects you from inflation is simple. When inflation increases, rents increase along with it.
When inflation increases, your mortgage payments don’t increase. They remain steady. The bottom line is that when inflation goes up, it signals a stronger economy and a higher demand for real estate.
Why Invest in Real Estate?
Why invest in real estate? This industry offers investors every advantage possible. It provides a stable, passive income that you can rely on. There are major tax benefits to investing in real estate too.
This stability can give you the opportunity to build real wealth over time. That’s a smart business right there.
Would you like to connect with other entrepreneurs building real estate businesses? Take a look at our Small Business Forum.