Is real estate a good investment? Why do we keep hearing about people making money in real estate? More and more people are discovering real estate investment opportunities and the rewards that come with having an investment property. Andrew Carnegie said, “90% of all millionaires become so through owning real estate.”
What is a real estate investment?
Real estate investing is buying a property to own and manage and to rent out to generate an income. The property can be an apartment, house, shopping mall, or even shopping center. Any brick and mortar is real estate and can be turned into an investment property. The objective of investing is to make more money from a property than its expenses.
Investing in real estate is more than just buying, renting, or selling. It is also about building value in the property through either renovations, additions, or inflation.
Why invest in real estate?
Think about every building that is standing, being developed, or being planned. All of those add up to real estate’s huge industry. The commercial market in the US alone is over $10 trillion and every building included is part of the real estate industry.
So what does this mean? A never ending demand from two parties – people and businesses. The demand and competition for housing is eternal – people will always need a home, a huge incentive for buying an investment property. Likewise, any business will need a brick and mortar (yes, even online companies) and will continue to contribute to the massive commercial market, another incentive to join commercial real estate investing. So, is real estate a good investment? Yes! These demands alone can vouch for that.
An investor wants to put their money somewhere that will constantly give them returns – which is where investing in real estate comes in.
How to make money in real estate?
One great thing about real estate is its hedge against inflation (when the value of goods increases and gets more expensive). As a real estate investor, you benefit from inflation. That means rent increases, home prices increase, and money in your pocket increases. When the value of a home increases, that means the house has appreciated and appreciation is a great bonus to real estate investing.
There are different ways to making money in real estate. Buy-and-hold properties is buying a rental property, and collecting rent every month. This essentially means becoming a landlord but that depends on if professional property management is used. This is a good long-term investment because income is stable and there is a chance to gain appreciation.
Related: Five Things You May Not Know About Becoming A Landlord
Fix-and-flips are a great way to make money quickly. This is finding a property that needs work, renovating it, and then selling it.
Collecting rent every month or selling a house are some of the obvious ways to make money. However, there are other ways to make money in real estate without doing a lot of the work.
Passive investing means investing in real estate without doing any of the dirty work. You look for investors buying an investment property and lend them money to renovate the properties. In return, you get interest payments every month and a final payment at the end of the term. This is called a first trust deed investment because the interest is protected by the property.
Another passive way to make money in real estate is by working with a real estate company, a syndicator, which is buying an investment property. You can buy a share of the property and you get a share of the rent and selling price.
Real estate is a good investment, but is it the best?
There are different ways to invest other than real estate like stocks, gold, bonds, etc. Determining what’s best depends on risk, required capital, and other factors. There are several advantages that come with buying an investment property.
1) Risk – With real estate, you can control risks more so than with stocks. You can look at how residential and commercial property investments are performing and at their past performances to understand trends and patterns. Stocks are more difficult to understand.
However, to a certain extent, an investor can understand the influencers of a real estate market more easily. For example, location and tenants can be analyzed before investing and investors can pick the optimal options to ensure returns.
2) Taxes – There are benefits to having a rental property. The interest on the mortgage, operating expenses, property taxes, insurance and depreciation are all tax deductible. The deductions depend on rental income but expenses cannot be more than income, which is why positive cash flow is so important.
3) Required Capital – There are ways to make money in real estate without having to actually spend money, such as wholesaling. Trading is another option that comes with real estate because the assets are tangible. Real estate is also one of the few investments in which you can gain ownership with little or no money down.
While investments can be very liquid, real estate brings diversification to an investor’s portfolio. The more diverse a portfolio, the less likely an investor will get burned if one type of investments doesn’t perform well.
Related: Buying Investment Properties With No Money
So, is real estate a good investment?
If you’re still asking yourself “is real estate a good investment,” or “why invest in real estate,” then maybe we need to tell more . . .
When buying a rental property, there is always the option to move in the property later as a personal home. Likewise, if you’ve moving to a new home, you could always rent out the old house and turn it into an investment property. The income from that investment property could cover its own expenses plus be used toward the mortgage payment on the new home. This pattern can continue, which is how many investors end up building a huge real estate investment portfolio and become very wealthy.