There are numerous investment channels but real estate is considered to be the most preferred and most powerful. Why is real estate investment more dominant? The answer is high leverage. Why does real estate provide high leverage? Because the rate of return for real estate investments is higher than other investment channels. Rentals are considered the center of the real estate market. With all the recent online tools available to you, owning and managing rentals has become so much easier and hassle-free. Following are some reasons to invest in real estate as compared to other investment opportunities.
- Increased leverage and rate of return(ROI)
It is much easier to get a loan on a real estate property as compared to other investments. Real estate, as collateral, is secure and is a tangible asset, thus financing is easily available. Increased leverage and rate of return work in cooperation. Higher leverage means a higher rate of return for your investment. A good investor would make sure that the rental amount covers not only the mortgage payments but also the interests, taxes, and insurance costs. Doing this ensures a high return on your investment and a high ROI means a good cash flow.
2. Cash flow
Cash flow is a significant benefit of investing in real estate. Cash flow is the net income after the monthly mortgage payments and all other operating expenses payments (OE) have been made. As time goes by, your cash flow will increase because of the decreasing mortgage balance and this also means you are building more equity.
3. Appreciation and equity build-up
Real estate appreciates steadily and thus it makes it a favorable asset to own. Certain parts of a state would appreciate faster than others, depending on the development and population changes in the area. The appreciation can also be long-term, even after a cycle of ups and downs in the values. The real estate market is more perceptive as compared to other investments since real estate is its own market! As the values appreciate, you are building equity on your asset, and building equity means building wealth.
4. Real estate tax benefits and deductions
Purchasing and investing in real estate allows you to have certain tax benefits and deductions and this can save you money. Using real estate as an investment vehicle lets you deduct all the practicable operating expenses (OE). Some examples of such are management company fees, repair and upgrade costs. Interests on mortgage loans are also tax-deductible. If your property is income-producing, you can write it off as depreciation by deducting the cost of the investment property over some years. If you work out of your home as a landlord you may be able to write off the home office expenses. Insurance costs for your investment property are also deductible from your taxable income. Some examples of insurance costs are hazard insurance premiums and landlord liability insurance premiums. You may also be able to defer some or all of the capital gains when selling your investment property if you can do a 1031 exchange.
Please refer to your tax advisor for more detailed tax benefit options and advice.
5. Source of retirement income
The income from real estate rentals is considered passive income as it doesn’t require a lot of work as compared to other income-producing venues. The appreciation as mentioned above is more and more over time so it makes sense to own your investment real estate for tens of years so it can become your retirement income source. By the time you retire, your mortgage will most likely be paid off which means you will have a lot more rental net income to support you during your retirement period.
Don’t think twice! Being a real estate investor is worth it, especially in the long run. If you have money saved up and are thinking to invest it to generate supplemental income, don’t hesitate to invest it in real estate. Be a landlord and make real estate a big part of your investment portfolio. Owning real estate will open doors for your asset diversification. Passive cash flow and rentals being the center of the real estate market are more than good enough reasons for you to start your real estate venture right away.
Once you are ready to buy and have made up your mind, please feel free to reach out to us at 951-314-4251 or email us at [email protected] to get a complimentary consultation! Legacy Homes Realty is located in Lake Elsinore and we provide real estate consulting, sales and purchase services to all surrounding cities and counties. We are specialized to do home valuations and have been in business for more than 16 years.