It may seem slightly daunting to step into the world of real estate in this pandemic. With everything going on, you may think about staying settled for a long time before making any investments any time soon. However, ask anyone, and they will tell you the same thing – any investment is a good investment if you do your research properly, regardless of the timing. When thinking about investing in a property or real estate, your research plays a vital role in judging whether the idea was lucrative or not.
And so today, we bring you some of the significant reasons you should bank your money on real estate today instead of tomorrow!
Real estate is known for having steady cash flow. The cash flow in this scenario is the net income from a real estate investment after mortgage payments and operating expenses have been made. 6% or higher cash flow can be expected ideally from a genuinely good real estate investment.
Accounting teaches some key things about assets and one main pro of some assets is appreciation. Appreciation occurs when the value of your asset increases over time rather than decreasing. Very few assets have this trait, and luckily real estate is one of them! With a good investment, you can turn a profit when it’s time to sell. Rents also tend to rise over time, which can lead to higher cash flow.
Leverage can be defined as the use of various financial instruments or borrowed capital to increase an investment’s potential return. So for example, a 20% down payment on a mortgage, gets you 100% of the house you want to buy. Now that’s a good deal! Over time you can pay the mortgage and own the whole home yourself.
Investing in real estate can help you build your equity in the long run. As you pay down a property mortgage, you build equity which is then an asset and eventually part of your net worth. And as you build equity, you have the leverage to buy more properties and increase cash flow in the future. The cash flows when the money’s in the right place!
A real estate investment can aid in diversifying your portfolio. Diversifying your portfolio will allow you to spread the risk instead of concentrating it. Real estate will always serve as a safe tangible asset to lessen the risk in your portfolio and hence, keeping the property and real estate at the back of your mind the next time you feel like making an investment would be an excellent move.
A significant advantage of real estate is that it can be developed. The tangible resources such as wood, brick, tiles, etc, can all be improved and thus can help increase the value of the property. Whether the repairs that are made are structural or cosmetic, do it yourself or hire someone, the critical concept remains the same – you can make your real estate worth more by improving upon it.
Just like Appreciation, the matter of Depreciation also needs to be mentioned. Depreciation is an accounting method that allows you to deduct the value of an asset over its useful life. You may question why this is a pro, but the depreciation deduction allows a real estate investor to generate more significant positive cash flow while reporting a lower income for tax purposes. This creates a higher return than you may originally get. Talk about a real yin-yang situation, but all for your greater good!
In some cases, Tax codes also allow various deductions for the normal expenses incurred in owning real estate, such as property upkeep, maintenance, improvements and even the interest paid on the mortgage. You can clearly see it’s a win-win!
Investing in real estate is a great option for a lot of people and for most companies. The diversification and the numerous benefits alone can help boost your exposure and future wealth. Be wary of how much you are willing to spend and in which type of real estate you would want to invest and you’re good to go!
