While every income investing strategy comes with its own pros and cons, real estate holds more promise than the stock market, bonds, gold, certificates of deposit (CDs), and mutual funds. According to a recent study by Pew Research, American households are renting now more than ever before. This presents savvy real estate investors a great opportunity to make a good return by investing for monthly income in real estate.
Here are some reasons why real estate is the best way of investing for regular income and growth:
Related: 7 Major Benefits of Investing in Real Estate
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Diverse Options
One of the main benefits of investing for monthly income in real estate is the incredible variety it offers. Investors could choose to buy office buildings, multi family properties, single family houses, apartments, and condos. Money can be generated through various investment strategies including renting, buy-and-hold, fix-and-flip, and wholesaling. In addition, real estate investors have the option of buying real estate investments that pay monthly income in any part of the world.
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Passive Income
Unlike many other income investment strategies, real estate gives investors the opportunity for investing for monthly income (rent) with little effort on a day-to-day basis (especially if you hire a property manager). This is ideal for people looking for a way of investing for retirement.
The good news is that rental income is not taxed as much as employment income. However, before buying any piece of property, real estate investors need to carry out a cost-benefit analysis to find out if their investment property will generate positive cash flow. For example, an investor may be earning a rental income of $1,000 per month while the mortgage payment is $600 a month. From this rent of $1,000, 5% ($50) in vacancy costs and 5% ($50) in monthly maintenance expenses are incurred. This means that at the end of the month, the investor is left with $300 in his/her pocket. Anyone thinking of investing for monthly income through single family properties, multi family homes or condos should use a good monthly rental income calculator to figure out their costs and expenses. Try out Mashvisor’s right now.
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Tax Write-Offs
Rental property owners are entitled to a wide range of tax deductions. They can write off interest on their mortgage, insurance, interest on their credit cards, maintenance repairs, legal and professional fees, property taxes and travel expenses. In addition, the government allows property owners to depreciate the buying price of their investments based on a pre-determined depreciation schedule. All these deductions will eliminate or reduce the amount of taxes that people investing for monthly income through real estate are required to pay on their rental income.
Related: What Rental Property Tax Deductions Apply to You?
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Low Risk
When considering their options for investing for monthly income, most real estate investors consider the risk involved. Compared to other options out there, real estate is a relatively low-risk investment. Real estate investors will always have a tangible asset or its worth in cash. Even if the real estate market experiences fluctuations, it is likely to bounce back. In the long run, real estate will increase in value due to appreciation.
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Minimum Knowledge Needed
The average investor struggles to understand how the stock market, bonds, and mutual funds actually work. However, minimal knowledge is required to begin investing for monthly income with real estate. There are numerous blogs, videos, podcasts, forums, books, mentorships, and networking groups that offer tips on real estate investing for beginners. Investors can, therefore, expand their knowledge and enhance their performance over time.
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Control
Anyone that wants to be their own boss should consider real estate as a means of investing for monthly income. Real estate investors decide what kind of investment property they will buy, how much they will charge in rent, who they will rent it to, and how they will maintain and manage the rental property. While investing in mutual funds or the stock market offers a level of freedom, someone else ends up controlling and managing the money.
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Equity
If a real estate investor decides to use a mortgage to buy a rental property and the rent collected pays all the costs, the tenant is basically purchasing the investment property for them. In other words, the tenant’s rent is building equity for the investor every month. This is the principle of OPT (using other people’s time) and OPM (other people’s money) to create wealth. And it is a win-win for everyone involved; the tenant gets to live in a decent, well-maintained property, and the mortgage lenders make a good return.
Related: What You Need to Know About Equity in Real Estate
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Hedge Against Inflation
Inflation is basically a sustained rise in the level of prices for services and goods. This means that your money can buy fewer goods and services over time. Unlike other forms of investment such as stocks and bonds, real estate enjoys a hedge against inflation. A real estate investor that owns rental property can hike rent in proportion with the general increase in prices. As a result, no money is lost due to inflation for anyone investing for monthly income via real estate.
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Long-Term Appreciation
The value of real estate tends to appreciate in the long run, regardless of fluctuations in the housing market. This is referred to as natural or passive appreciation. Therefore, besides making money via rent in the short-term, real estate investors can sell an investment property at a higher price than they bought it. For example, let’s say someone purchased an investment property worth $100,000. If the property appreciates by 5% annually, it will be worth $162,889 in 10 years. This means that the investor will have made a return on investment of over $60,000.
A real estate investor could also decide to create forced appreciation by improving the investment property in order to increase its value. For instance, someone could buy a dilapidated property and upgrade it with a new kitchen, paint, new flooring, a new bathroom, and landscaping. With the increase in value, property investors can increase their rental rates, and make a higher profit when they decide to sell.
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Leverage
When it comes to stocks and bonds, investors are required to pay 100% upfront. Investing for monthly income through real estate can be done using leverage. For instance, if an investment property requires a 20% down payment, a real estate investor can use $100,000 to buy five properties at the same time. The rest of the money can be borrowed from a lender. Leverage allows investors to grow their portfolio quickly without having to spend much.
Conclusion
Successfully investing for monthly income in real estate investments is not possible without minding due diligence. Therefore, real estate investors need to carry out extensive research and cross reference data with authoritative sources. One of the most important considerations when investing for monthly income via rental property is location. Investing in the right location will ensure a favorable rate of return due to constant demand.
To learn more about how Mashvisor can help you find profitable investment properties, schedule a demo.
