Ask a Realtor and they will more than likely tell you that real estate is an ideal investment. But why do they think that? Realtors like to invest in real estate because it is something that they know and they have some control over a real estate investment. But what are some other advantages to this type of investment and why does it make sense for just anyone to invest in real estate? Here is a list of reasons why real estate is such a good investment.
Income. An investment in real estate generates income when rent on at property is more than the expenses there will be a positive cash flow. Of course you get income from a savings account and income on a stock if it pays a dividend. But stocks don’t produce the income until they are sold.
Depreciation. This is a tax benefit that is unique to rental real estate and is one of the few tax shelters that are still available as a part of the tax code. This is a non-cash deduction from taxable income for wear and tear on the asset.
Appreciation. Most real estate properties will go up in value over time. According to the National Association of Realtors the annual price growth over the last 10 years has been 6.4%. In just the last five years it has grown at 7.3% annually. If you are considering investing in a particular community it is wise to check what kind of appreciation they have had in the last 5 to 10 years.
Equity buildup. This is the result of the amortization of the mortgage. Each payment applies less to the interest and more to the principal. This increases the equity that you have in the property each month that you make a payment.
Leverage. This occurs when borrowed funds are used to control an investment. An example of this is when you purchase a property for $100,000 cash. You rent the property and paid the expenses and have $10,000 left, your investment will have generated a 10% return.
You can always just leave your money in the bank. It is insured and safe. Interest rates today on savings are between 0.35% and 0.5%. Not a very good investment if you ask me. Another option is the stock market. The stock market is a record high levels and that may look like a very appealing option for investing in. But it is volatile and you may not have the know how to make money investing there.
Most homeowners are familiar with the general operation of a home and the maintenance, taxes and insurance on a home. Making the move to real estate does not feel like a completely unknown thing to jump to.
Connecting with a good real estate agent that has investment properties themselves is a great way to learn about what to look for in a good investment. Also consider joining an real estate investment group in your community to start learning about investing in rentals. Then make the jump and buy an investment property. The benefits are real…and you can do it!