Buying land, structures, and homes is a commercial activity known as real estate development. Even though this investment entails a start-up cost, it's a profitable option that often offers a high ROI and continued passive income. Research shows that real estate is the highest-earning asset type a portfolio can have.
Luckily, there are plenty of options when it comes to real estate investment. For example, you can invest in a vacation house, acquire a rental property, or buy commercial real estate. No matter which option you choose, real estate investments have several advantages.
Let's take a closer look at the eight benefits of investing in real estate and understand its potential for financial growth.
What Is Real Estate Investing?
Real estate investing is the practice of purchasing real estate as an investment rather than using it as a primary residence. It refers to any piece of land, house, infrastructure, or other tangible assets that are often stationary.
A house, an office building, a piece of agricultural land, and a piece of commercial property are some examples of real estate. This type of investment is considered a safe type of investment.
The BRRRR method, renting properties, owning REIT shares, ancillary incomes, and online real estate platforms are all ways to invest in real estate.
Related: The BRRRR Method in Real Estate: Top Main Things to Know About
Let's take a closer look at the benefits and reasons why to invest in real estate.
What Are the Benefits of Investing In Real Estate?
There is a saying in real estate investing: start as young as possible.
Buying real estate is a decision that can never be made too soon or too late. But before investing in real estate, it's important to know what your options are based on your age, income, and net worth.
Although it takes time and money, investing in real estate and becoming a landlord is a smart way to earn income. Ongoing property maintenance is necessary after picking the ideal property, preparing the unit, and finding trustworthy renters. With the help of today's advanced property management software like TenantCloud, it is easier than ever to run and scale up your business.
Related: Is Investing in Real Estate a Good Idea? Main Pros and Cons to Know
source: TenantCloud Landlord Community
Here are eight benefits to starting investing in real estate:
Passive Income
Real estate passive income contrasts with other investments because it often demands you to manage your investment to earn returns. Real estate investing leaves more free time to concentrate on growing your business. Consider this type of investment if you are searching for a great source of extra income to help you reach your financial goals even faster. When investing, there are several options to consider. Depending on your experience, available cash flow, and time you can spend, there are some options for you:
- Single-Family Home (SFH) - A single-family home or SFH provides long-term asset growth and increases monthly income.
- Multi-Family Units – a duplex, triplex, or quadplex, is another choice for a rental property. You may manage only one property and earn money from more than just one tenant. Investing in multi-family units can bring more significant income and are simpler to maintain.
- Apartment Buildings - homes with five units or more may suit your needs if you're seeking a larger passive income scale. Similar to multi-family buildings, these investment properties have the potential to be more streamlined in certain respects and generate more passive income. TenantCloud will help you to recruit tenants, collect rent, manage properties, and create universal landlord forms - all in one place.
- Storage Facilities/Units - are helpful for both urban and rural communities. Storage facilities can be the perfect opportunity for new owners because they often have several units and very low overhead costs.
- Vacation Properties - can be bought in locations where you and your family have already visited, giving you a vacation property to rent out for the rest of the year.
- REITs - are businesses that own real estate or hold mortgages on buildings. You may participate in the asset's growth when you invest in REITs.
- Commercial Properties - are business buildings, industrial complexes, or even buildings with a mix of residential and commercial uses. Keep in mind that commercial properties demand a significantly larger initial investment.
Related: Best Places To Invest In Rental Property: 5 U.S. Locations You Should Know
Long-Term Financial Security
Unlike other investments, real estate investments do not have a set maturity term. The decision to hold or sell the property goes with the owner.
source: TenantCloud Landlord Community
Real Estate Appreciation
The value of your property is one aspect of home appreciation. Appreciation in real estate refers to the increase in value over time of a home or investment property. It's crucial to monitor this measure, and it is easier with the help of calculators.
Home appreciation is a moving objective - your local housing market's health and tendencies will determine the typical property appreciation rate.
The simple explanation for home depreciation is economics: the number of homes available is larger than the demand for them. Local prices might crash due to a crowded market, especially if the job sector is also struggling. While the economy is typically to blame for depreciation, other elements such as neighborhood changes, rising crime rates, and the quality of the local schools can also influence property values.
There are a few strategies to maintain a high appreciation for your home, even if you can't do much to prevent the effects of the economy: invest in maintenance, consider the long-term value of the neighborhood, and don’t overvalue.
Tax Advantages
Real estate investing may also provide you with mortgage interest, which is often tax deductible. This can result in significant cost savings over the course of your loan.
The depreciation cost that can be claimed on a real estate investment requires no cash outflow and yet lowers taxable income – thereby protecting you from a portion of the taxes that would be due otherwise. Residential real estate currently has a 27½-year depreciation time, while commercial structures have a 39-year depreciation term.
You may also benefit from a "1031 exchange" when you sell a property. By reinvesting the earnings into another piece of real estate, you can delay paying capital gains taxes on the sale of a property. This method can expand your investment portfolio and reduce your taxable gain.
Ability To Leverage Funds
Leverage is the process of financing your investment using other people's cash. For instance, you effectively utilize the bank's money to fund your investment when you take out a mortgage to invest in real estate.
Having the option to leverage your investment may allow you to increase your returns. Of course, there are risks - if the property value drops, you will owe more money than the property is worth. It’s critical to understand the risks before deciding to leverage your investment.
source: TenantCloud Landlord Community
Protection Against Inflation
Unfortunately, cash investments, mutual funds, stocks, and bonds, are impacted by global inflation. These investments have a direct correlation with economic value. However, real estate investments demonstrate that value only rises over time.
Real estate is a physical asset that can be sold for cash at any time. It is crucial to understand "market risk," which means that you might not be able to sell your assets for the same price you purchased if their value decreases.
Real estate appreciates in value over time, protecting its owner from inflation. Because tenants will always look for a place to live, real estate values rise faster than the inflation rate.
Great Returns
Unlike other investments, real estate investments do not have a set maturity term. The decision to hold or sell the property goes with the owner.
Investing in real estate can generate rental income, and at the same time, its value increases in the long run.
source: TenantCloud Landlord Community
Steady Real Estate Cash Flow
The amount of money left over after paying all monthly expenses is referred to as cash flow. This includes your monthly payments, taxes, insurance premiums, management fees, and any other costs associated with your property. Rent and rebilled fees make up the majority of the income. You may build up liquidity with a good cash flow to keep investing. Maximizing your assets is essential if you want to make money from your real estate holdings.
source: TenantCloud Landlord Community
The Bottom Line
Real estate investing may provide you with significant opportunities to increase wealth, establish financial stability, and accomplish long-term financial objectives. Real estate is a wise and profitable investment that should be at the top of your list if you are looking for a safe and consistent asset.
