Why Investing in Real Estate is Good For You



Investment—sounds tiring and stressful, isn’t it? However, unbeknownst to many, investments do not really require a Harvard education to pull off. It just takes a good and sufficient understanding of the matter coupled with thorough and in-depth research.

There are various options available for passive investments that allow you to have a good return on investment with less stress and effort. One of the best options for passive investments in real estate.

Keys to investing

Before going about the advantages of investing in real estate, we must first understand what real estate investment is. Investopedia defines real estate investment as “an investment involving a real estate property that generates income or is otherwise intended for investment purposes rather than as a primary residence.”

1) Guaranteed Cash Flow From Rent Dues

When you buy a real estate property principally utilized for renting purposes as an investment, you will have a guaranteed monthly income. Majority of investors prefer to calculate the net rental yield, which takes the expenses, taxes, and other costs into account, and divides by the property value or cost.

Some people shy away from investing in these kinds of properties because sometimes the net rental yield can be negative thereby amounting to negative losses. However, rent costs nowadays are relatively higher than the monthly mortgage payments. It is more likely to achieve consistent cash flow because of the difference between the rental cash flow and the mortgage payment.

2) Real Estate Appreciation

Because of the constant increase in value over time, real estate properties are considered one of the most profitable and reliable sources of renewable capital.

However, it is always advisable to do an in-depth and thorough research on the location of the real estate property you are considering to invest in because the location of the property has a major influence on the appreciation and/or depreciation of the property involved.

3) Long-Term Financial Security

In relation to the guaranteed cash flow generated by rental dues, investment properties provide its investors with long-term financial security. Long-term financial security can be attained with this investment due to the real estate properties’ ability to generate a regular cash flow as well as benefit from real estate appreciation.

4) Inflation Benefits

Rent dues are the ones primarily affected brought about by inflation. With the occurrence of high inflation rates and the increase in the cost of living, the rental income and property value increase simultaneously.

However, mortgage payments on the real estate property remain constant and the same. This, in turn, has the effect of increasing the cash flow generated by the real estate property, without the increased expense of holding the property.

5) Tax Benefits

The rental dues you receive from the real estate properties you invested in are not subjected to self-employment taxes. Moreover, the government also offers other tax benefits for real estate investors including depreciation and significantly lower tax rates for long-term profits.

This way, you get to keep more of the income generated by your real estate properties as compared to income generated by your other businesses or sources of profit.

Comments

  1. Very good reasons to own a rental property. However, I wouldn’t characterize the cash flow as “guaranteed.”

    One eviction can easily erase any profits for an entire year. You have to screen thoroughly and minimize vacancies to be profitable.

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