Fast turnarounds, substantial returns, and tangible assets drive investors towards a more stable market.
It has been proven time and time again, that investing in real estate is one of the best ways to build long-term wealth. With daily volatility in the stock market, there is an allure about having a tangible asset that can’t disappear in the blink of an eye. As investors explore where to put their money, you can’t ignore the numerous advantages of investing in real estate.
Real estate allows you to build equity to exponentially increase wealth.
Not many methods of investing allow you to benefit both in income and also creating a foundation for long-term financial security. Whether you are outright purchasing the property as a primary residence or renting it out, you are paying down your mortgage and building equity. That equity gives you further leverage that you can use to acquire additional properties, which even further increases your net worth. When it comes to rental properties, cash-on-cash return is one of the most attractive qualities of real estate investment.
Diversify your investment portfolio with a physical asset.
The variability of the stock market is likely to make most investors question any large stock purchases. While property values do fluctuate, the difference is that you have a physical asset that you can always utilize. Regardless of market conditions, you can always use real estate as either a rental property or a primary residence. The most successful investors understand that diversification into real estate helps protect against short-term sell-offs or during bear markets.
Real estate purchases protect investors from inflation.
Inflation is an investor’s worst enemy. However, when you invest in physical properties, your net worth is unaffected from increases in the price level. Inflation causes your rental prices to increase, protecting you from the short and long-term impacts of inflation. However, in most markets, the current return hovers around 6-7%, exceeding inflation that can reach approximately 3-4%.
Investors can utilize tax benefits, even in times of depreciation.
When making any investment, you hope that the value of your asset increases. However, there are no promises. No one can predict the market. Even in a downturn, investors can take advantage of a loss. Real estate investors can write off the depreciation of an asset, like property and see substantial tax benefits on their returns. If you do anticipate a loss, you must talk to a tax professional to determine the best way to address property depreciation.
Real estate property values increase over time.
While predicting short-term increases can be tricky, real estate provides a foundation for stable, long-term gains in wealth. Historically, real estate values have always increased over time. Now, more than ever, the rental market is expanding due to increased construction costs. Due to an ever-expanding demand, rental rates have substantially increased, and are only expected to continue rising. More and more investors are getting into the rental market, further limiting the supply of potential rental opportunities. It is pertinent that prospective investors make decisions quickly to take advantage of long-term value increases.
Real estate is much easier to finance and provides positive leverage.
As an investment, real estate is one of the easiest to finance, especially in current market conditions. Bruce Ailion, Real estate agent and attorney for The Ailion Team, RE/MAX Town & Country explains the benefit of positive leverage in a recent article:
“You can borrow 50 percent to 90 percent of the acquisition cost at attractive rates, often rates below the anticipated annual investment return. The ability to magnify the investment return with financing is called positive leverage. Stocks, bonds, commodities, and art do not offer the same ease when being used as collateral for financing.”
With real estate, you have the unique ability to create wealth without having to fund the investment fully. Further, you can take your success in one property to leverage with another. This allows an investor to create a winning “domino effect” of wealth-building.
Investing, renovating, and providing maintained rental properties helps the local economy.
When investors invest in an undervalued market, you have the potential to create wealth for yourself while also stimulating the economy. By employing contractors in the area, purchasing materials from local businesses, and providing a living space for residents, you are improving the community while also increasing your net worth.
With countless advantages, it is no wonder why the most successful investors choose to diversify by adding real estate into their portfolio.
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