Investors often look for low risk investments to build their wealth. Real estate investment is probably one the best and safest way to make money compared to other investment like stocks and shares. As a real estate investor, you can enjoy ean xcellent rate of return, a diversified portfolio, and amazing tax advantages. However, to succeed in real estate investing, you need to follow certain guidelines that should be known to every real estate investor. Here are the top reasons why real estate investing is a great investment strategy.
1- Many ways to make profit in real estate investing
The real estate investing business is vast. As a real estate investor, you have plenty of options in which you can make profit. Becoming a landlord is the simplest and easiest way to do so: you just have to find a real estate property in a good location and high occupancy rate to make profit by collecting rent. However, if you buy a rental investment property, make sure you can afford the mortgage payments, even without tenants, to avoid the financial burden.
Short-term rentals are also a good idea to make money in the real estate business. Make sure to check out Mashvisor’s investment property analysis calculator for detailed real estate metrics in your area.
Buying low, selling high is also a good real estate investment strategy. The trick here is to find a real estate property under market value to buy and then sell it for a higher price. Think about foreclosures and house flipping and equip yourself with excellent negotiations skills. What makes real estate investing very attractive is market price flexibility, which is not the same case with stocks, where you always buy and sell at market value.
Remember that you don’t have to own or even buy a real estate property to make profit. Indirect real estate investing is when you buy shares in REITs (real estate investment trusts) and make profit from dividends paid by such companies.
2- Real estate investment provides better returns and lower risk than the stock market
Investing in real estate is less risky than the stock market, and it provides better returns. When the real estate market is facing a crisis, you just have to hold on to your property until it improves, and as a result, you build equity. The stock market is controlled by numerous factors beyond your control, unlike real estate where you have more control of your investment because a real estate property is a tangible asset that can be leveraged while enjoying capital appreciation.
When compared to the stock market, real estate investment provides continuous cash flow that is in pace with inflation. Say you invest in a real estate rental property. The market price or rental price automatically rises as the cost of living (inflation) increases. Buying the right property is the key, of course.
3- High tangible asset value
A real estate investment will always have value, unlike intangible assets like stocks which can dip to zero and lose all their value. Insuring your real estate investment properties is important to protect your asset in case of a disastrous scenario. Investing in high tangible assets, like real estate investment properties, will not only diversify your investment portfolio but will also act as a hedge against economic uncertainty.
4- Build your wealth using leverage
Many real estate investors use borrowed capital to acquire income-producing real estate properties. Leveraging your investment means using mortgage to make money. Say you put 25% on a $100,000 rental property. A well-selected real estate property will be cash flow positive, which means that your annual rental income will cover your investment costs (mortgage payments, property insurance, taxes, etc.) and provide additional cash in your bank account.
5- Real estate values always increase over time
As a general rule, the longer you hold onto your real estate property, the more money you will make. Real estate values will always increase over time, and the housing market has always recovered from past bubbles that caused real estate value to drop. Normally, real estate enjoys a positive appreciation, making it very attractive to investors looking for less risky investments.
As an investor, having a diversified portfolio is very important to spread out the risk. And what better way to diversity your investment portfolio than putting your money in real estate investment properties. Real estate is a low risk investment that can be used to mitigate the risk of your other investments. Diversification is also advisable among different types of real estate such as single-family homes, condominiums, studios, etc.
7- Tax benefits of real estate investment
Investing in real estate comes with a lot of tax advantages. As a real estate investor, you can deduct mortgage interest, property taxes, and depreciation from your taxes. In addition, if you sell a real estate property, you don’t have to pay the capital gains tax if you reinvest the proceeds in another real estate investment property.
The Bottom Line
Real estate investment provides many advantages over other investment opportunities like the stock market. Real estate investment provides you with monthly cash flows while enjoying capital appreciation, since real estate properties typically go up in value and recover from market bubbles. Additionally, investing in real estate gives you more control over the investment, which means you can buy low and sell high, making instant profit. Keep in mind that investing in real estate is not for everyone as it takes time to learn how to invest, and it takes effort and experience to find the best deals.