When done correctly, real estate is one of the most popular and profitable investments with a lot of potential for success. Real estate investing offers many advantages, and investors can enjoy a steady income flow that may lead to financial freedom. We spoke with the industry experts who shared the various benefits of investing in real estate.
1. You Can Generate Passive Income
Brady Hanna, President, Mill Creek Home Buyers
By investing in real estate, you can generate passive income that is nearly tax-free. Your rental properties will work for you even when you are sleeping. By buying several rental properties that generate enough income to cover your expenses, you have the freedom to do what you enjoy, instead of spending all of your time at work.
2. You Can Build Equity for the Future
April Kozlowski Palomino, Real Estate Agent, Coldwell Banker Residential Real Estate
One of the advantages of investing in real estate is being able to build equity. Equity is an asset that is part of your net worth. As you pay off your mortgage, you build equity. As you build equity, you now have leverage to acquire additional rental properties and increase your cash flow.
3. You Can Indulge Your Entrepreneurial Spirit
Jason Fox, Founder, Jason Fox Real Estate Marketing
There are many ways to invest in real estate and become an entrepreneur. You can buy a home, fix it up and put it back on the market for a profit. Buy a property to hold and let the appreciation create wealth. Perhaps you become a landlord and start purchasing rental homes, multi-family homes, or even apartments. Maybe land development is for you. You are the boss.
4. Real Estate Investing Is a Hedge Against Inflation
Daniela Andreevska, Content Marketing Director, Mashvisor
While most people fear inflation, this is not the case with real estate investors. Investing in properties is an excellent hedge against inflation. As the price level goes up, so does the rental income you get from your property and your investment’s value. This means that real estate investors are protected against both the immediate and the long-term effects of inflation. The average annual real estate appreciation rate nationwide has been nearly 6 percent in recent decades, while the inflation rate rarely reaches 4 percent.
5. You Can Enjoy Tax Benefits Through Depreciation
Marshall Armond, CEO, CreditRevo
There are different reasons to invest in real estate. It is a proven way to build wealth over time and can help generate cash when leased. It can also provide you with tax benefits through depreciation, and this can help increase your returns.
6. Owning Property Generates Wealth
Sarah Richardson, Broker & Principal, Tru Realty
Everyone should own at least one house or a piece of property. One of the many benefits of investing in real estate is being able to generate wealth through appreciation, building equity, and hedging against inflation. It can also provide cash flow with passive income from rental properties. These are the reasons why real estate should be a key component of your investment portfolio.
7. Real Estate Is Easy to Finance & Provides Leverage
Bruce Ailion, Real Estate Agent & Attorney, The Ailion Team, RE/MAX Town & Country
Real estate as an asset investment vehicle is easy to finance. You can borrow 50 percent to 90 percent of the acquisition cost at attractive rates, often rates below the anticipated annual investment return. The ability to magnify the investment return with financing is called positive leverage. Stocks, bonds, commodities, and art do not offer the same ease when being used as collateral for financing.
8. The Value of Real Estate Appreciates Well Over Time
Wilson McDowell, Managing Director & Principal, Cite Partners
Industrial real estate has been a very attractive investment for many individuals and institutional investors. Recently, the amount of capital chasing the ownership of industrial real estate has substantially increased. Values are increasing for two reasons. The first is that rental rates are continuing to rise because of the demand for these facilities and increasing construction costs. Secondly, with the number of investors bidding on industrial real estate investments, the cap rate, or yield, are continuing to compress, which is increasing values.
9. Investing in Real Estate Helps Mitigate Risk
Shawn Kunkler, Real Estate Agent, Paragon Real Estate Group
One of the greatest benefits of having real estate in one’s investment portfolio is for mitigating risk. Sure, having a calculated income month over month is an outstanding benefit, but having insulation against higher-risk investments like stocks is often important. Having the right blend of real estate in one’s portfolio can offer just enough diversification to help offset exposure by not hyper-focusing on one single investment profile.
10. You Can Take Advantage of the 1031 Exchange
Marco Santarelli, Founder & President, Norada Real Estate Investments
Section 1031 of the Internal Revenue Code allows you to postpone paying taxes on the sale of your property when you reinvest the gains in another property. This is because the IRS considers that you are exchanging your old property for another property. You’ll also need an intermediary to handle the transactions to be eligible for the 1031 Exchange.
