Real estate is an excellent investment for many reasons. You can enjoy excellent rates of return, amazing tax benefits and real estate leverage to build your wealth.
Investing in real estate is the best way to earn passive income, save for retirement and build a diversified investment portfolio.
Earn a passive income for life
The main reason for investing in real estate is to generate passive income for you so that you can enjoy more of what you want.
Real estate offers better returns than the stock market without as much volatility
Historically, in real estate, your risk of loss is minimized by the length of time you keep your property. As the market improves, the value of your home improves and, as a result, you accumulate net worth. Risk never changes in the stock market and there are many factors beyond your control that can negatively impact your investment. Real estate gives you more control over your investment because your property is a tangible asset that you can use to capitalize on many sources of income, while enjoying capital appreciation.
This is the percentage return of direct rental income, and can be calculated gross or net. Experienced investors prefer to calculate the net rental yield, which takes into account expenses ( home insurance , amenities, …) taxes and other costs, and divides by the value or cost of ownership.
The net rental yield, however, may be negative because it does not take into account mortgage payments.
Investing against inflation
A long-term real estate investment strategy is an effective protection against inflation because the value of this asset class has always increased at a rate similar to that of inflation. You make sure that your property will help maintain your wealth and your standard of living.
Rents usually increase with inflation, while mortgage payments on the property remain stable. This increases the cash flow, without increasing the expenses related to the ownership of the property. When inflation increases, it can also translate into more tenants, as mortgage loans become more expensive for average consumers. More tenants increase demand, so rents can increase.
Real estate has a high tangible asset value
There will always be value in your land and in your home. Other investments can leave you with little or no tangible asset value, such as an action that can drop to zero, or a new car that loses value over time. Home insurance will protect your real estate investment, so make sure you get the best available policy to protect your assets in the worst case.
The value of real estate will always increase with time
The story continues to prove that the longer you keep your property, the more money you will earn. The housing market has always recovered from the past bubbles that had brought down the appreciation of homes, and for those who have kept their investments in these uncertain times, prices have returned to normal and the appreciation is to back on the right track. Today, real estate investors in the best-performing markets benefit from a windfall. In fact, last year, all the states of the country had a positive appreciation, and some of my clients in the Los Angeles market earned millions of dollars in less than a year thanks to this turnaround.
When you use borrowed capital to increase the return potential of an investment, you use the full power of leverage; and as real estate is a tangible or hard good, financing is readily available. The potential return on your leveraged real estate investment is significantly higher than that of an unleveraged investment.
Leverage can provide better returns, but it adds risk. For example, using € 100,000 of leveraged assets to buy three down payments, instead of one for € 100,000 in cash.
An investment in real estate can also diversify your portfolio.
If you have already talked about investing with a financial planner, you are very aware of the importance of diversification. When you diversify your portfolio, you spread the risk.
Many investors try to reduce the overall risk of their portfolio by allocating funds to various types of assets and securities. A good investment advisor will tell you that the fundamental element of reducing investment risk is asset class diversification (or, more simply, not putting all your eggs in one basket). This change in assets helps ensure that a portion of your investment portfolio performs well at all times, increasing the overall value of your portfolio at some point in a fluctuating economic cycle.
Adding investment properties to your portfolio will help offset the volatility of other high-risk assets, reducing the overall risk level of your portfolio and providing a more stable return.
Real estate investing offers many tax benefits.
You can earn tax deductions on mortgage interest, cash flows from investment properties, operating expenses and costs, property taxes, insurance and depreciation (even if the property is gaining value) and other benefits. The end of the year is a very busy time for real estate because people want to enjoy the many tax benefits before the end of the year!
An investment in real estate is not only a safe financial investment, it is also an investment that can provide years of fun, happiness and invaluable memories that will last a lifetime.