Why is Investing in Property a Good Idea?
Diversifying your investment portfolio is essential and real estate is a great way to diversify your investment portfolio. Is investing in real estate still a good idea? According to millionaires who made millions by investing in real estate, the answer is a resounding yes.
Steady Source of Income and Cash Flow
If you buy and hold real estate, you can earn monthly cash flow renting it out. Cash flow is the net income from a real estate investment after mortgage payments and operating expenses have been made. A key benefit of real estate investing is its ability to generate cash flow.
Tax Benefits and Deductions
Real estate investors can take advantage of numerous tax breaks and deductions that can save money. You can deduct the reasonable costs of owning, operating, and managing a property.
Real estate investors make money through rental income, and appreciation. Real estate values tend to increase over time, and with a good investment, you can turn a profit when it's time to sell.
Build Equity and Wealth
When you pay down a property mortgage, you build equity which is an asset that's part of your net worth. And as you build equity, you have the leverage to buy more properties and increase cash flow and wealth.
Another benefit of investing in real estate is its portfolio diversification potential. The addition of real estate to a portfolio of diversified assets can lower portfolio volatility and provide a higher return per unit of risk.
Real Estate as a Leverage
Leverage is the use of various financial instruments or borrowed capital like debt to increase an investment's potential return. A 20% down payment on a mortgage, for example, gets you 100% of the house you want to buy, that's leverage.
Real estate is always a great investment because you have more options than with other types of investments. If you invest in stocks, bonds, or a private offering, your success is completely dependent on factors outside of your control.
The inflation hedging capability of real estate stems from the positive relationship between GDP growth and the demand for real estate. The demand for real estate drives rents higher. This, in turn, translates into higher capital values.
Real Estate Investment Trusts (REITs)
If you want to invest in real estate, but aren't ready to make the jump into owning and managing properties, you may want to consider a real estate investment trust (REIT). You can buy and sell publicly-traded REITs on major stock exchanges.
Buying is Smarter than Renting
Most millionaires I know made more money from owning real estate than any other investment. Real estate consistently increases in value over time and outperforms other investments. Plus, it isn’t as vulnerable to short-term fluctuations as the stock market.
People will always need a place to live
There’s an opportunity for greater and more consistent returns with real estate than with other investments. The large number of new properties each year is a testament to the growing real estate market.
You can invest in land that produces income
Many businesses come and go, but there’s one thing we’ll always need: land. There’s an inherent demand for real estate, whether the land produces a product like coffee or is home to an apartment or retail space; so it will always be a good investment.
Ways to Invest in Real Estate
If buying real estate and renting it out is too hard for you, there are many other ways to invest in real estate, including:
What Makes a Good Property for Investment?
Everyone wants to know what property is the best to invest in to make the most money. While there’s not a one-size-fits-all answer, there are specific things to look for when you invest in real estate, including:
Downsides of Investing in Real Estate
There are pros and cons to investing in real estate. Knowing the negatives can help you make smarter choices and protect investments.