Why You Should Invest in Real Estate
Investing in Real Estate is a wise investment strategy. First and foremost, real estate is a physical asset. In addition, there is a limited number of real estate throughout the world. With the world population growing each day, there will always be a demand for real estate.
Next, real estate is a great way to build your estate. It can provide positive monthly cash flow. You can build equity and long-term wealth. The reasons for investing in real estate are many. We will cover some of the major reasons below.
Cash Flow: Cash flow is defined as the difference between your income and your expenses for a piece of property. In other words, if your revenue exceeds your expenses, you have positive cash flow. On the other hand, if your expenses exceed your revenue, you have negative cash flow.
It's important to remember that your expenses are more than just your mortgage. You also have taxes, maintenance, insurance, home owner fees, etc. Your ultimate goal is to find a property with equity and a positive cash flow.
Leverage: Compared to other types of investments, real estate investing lets you leverage your money. In other words, you can purchase a $100,000 investment property with a down payment that is a fraction of the purchase price. For example, if you put down $10,000 on a $100,000 property, you are leveraging your money 10 fold.
If your property appreciates by 10% in one year, your property will be valued at $110,000. In essence, you turned your $10,000 investment into $10,000 profit. Typically, you can't leverage your money this way with other forms of investments.
However, it's important to know that you should be very careful when you use leverage. Especially when you are incurring personal liability. Don't ever allow yourself to be tricked into thinking borrowed money is profit. It's a liability... plain and simple.
Appreciation: Appreciation is the increase in value of a property. Property can appreciate for two reasons: inflation and forced appreciation. Inflation is when the value of your home increases because the value of the dollar decreases. Furthermore, forced appreciation is when you make improvements to the home that increase the value of the home. This includes home repairs and renovations.
Tax Advantages: The U.S. government provides tax incentives to invest in real estate. Don't be fooled though, you should never purchase real estate simple for the tax incentives. If the deal doesn't make sense without the tax incentives, it probably isn't a good deal.
Once the Tax Act of 1986 was passed, it no longer made sense to buy or value Real Estate based on Tax Benefits. Real Estate once again became an economic commodity. Real Estate could only be valued and traded based on it's economic benefits. Everything artificial had been stripped away. This forces us to buy based strictly on the economics, doesn't it? The way you should always buy.
Other Benefits:Investing in real estate presents other opportunities too. Once you start to achieve success in real estate investing a few things will happen. For example, new investment opportunities will present themselves. You will meet influential people and build a network of successful entrepreneurs and investors. You will learn money making principles you can use to make investments outside the real estate industry. Finally, you can also achieve "time freedom" to pursue other passions and interests.
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