When it comes to investment, most people immediately consider stocks and bonds and may not give much though towards the value of real estate investments. However, with the recent growth in concern for the value of the stock market, more are turning to other viable and profitable investment opportunities.
Here we have some of the reasons why you should consider investing in real estate over other investment opportunities.
Positive Cash Flow
The biggest benefit of investing in real estate is that you will get a positive cash flow – without ever having to sell off your investment if you choose not to. In the stocks and bond market, there is no surety that you will be able to generate profit, it’s all estimated risks and potential payoffs.
However, in real estate, as the rate of your property increases in the market, you can easily sell to generate more money than you have invested into the property – or keep the property and have a source of continuous profit: Rent. It is easy to generate up to low double-digit profit returns after the mortgage is paid. As the value of your property investment rises, you can increase the rent, furthering your profit return.
Protection Against Inflation
By investing in real estate, you will not only generate profit, but it is the only type of income that keeps its pace with inflation. The best thing about inflation is that it can increase the value of a home or property while the burden of mortgage payments will be reduced over time. Real estate is the best way to protect your investment against inflation because bonds and stocks are always negatively affected by inflation.
Loan Advantage Increases Returns
Although real estate investment profit (appreciation plus rental income) may traditionally underperform compared to stock market profit (appreciation plus dividend) – purchasing real estate is eligible with a low interest rate loan, which can improve your return. For example, you purchase a home in a popular Tampa neighborhood for $300,000 and front the 20% down payment. As the real estate market improves and that neighborhood becomes more desirable, the property increases to $330k, or a 10% appreciation. Technically, since you put down 20% ($60,000) you’re really getting a 50% return on the property’s appreciation! Plus, the interest on your property loan is tax deductible.
Stocks on the other hand can be obtained on margin but the rates are much higher and non-tax deductible, not to mention, you could lose your stock investment if you need to sell your stocks to meet the demands of a margin call.
Tax Deduction Advantage
As stated above, interest on home loans are tax deductible but there are other tax benefits as well. You can avoid taking a financial hit tax-wise if you were to sell the property for a profit by simply using the proceeds to reinvest in another property. Also, if you were to pass away, your beneficiaries would receive the tax benefit – they are eligible to sell the property and not be required to pay taxes on the appreciation the property accrued during your ownership.
Control Over Your Investment
In the stocks market, you have no control over your assets. They can turn you into a millionaire or loser within a few seconds. The reason is that the stocks market is not stable – anything can happen at any moment. However, with real estate, you will have the surety that you will not have to deal with such issues as the real estate market can be quite predictable. In addition, with the right knowledge and work, you can improve upon your real estate investment – like making improvements to the home – and increase its value.
With real estate, you’ll also have complete control over your property. There is no one who can force you to sell your property. If you rent the property, your tenants will have to follow your rules. Even without tenants you will still have complete control over your property – you will have the freedom to convert your investment into profit whenever you want.
Tips To Buy Real Estate Property
You should know that investing in real estate is not for everyone – it requires some personal qualifications, like adequate financials, to be successful. If you are planning to invest in real estate property here are some of the things you need to consider.
- Make sure that your credit score is good enough that you can easily get a mortgage with a low interest rate. An ideal credit score needed for purchasing investment property is 740 or higher. If you do not have good credit score it is better that you improve it first before attempting the venture.
- You’ll need the financial backing in order to successfully purchase and manage a property. Putting a minimum of 20% down is a must but up to 30% is even better in order to qualify for better interest rates. Don’t forget about the added costs during closing or any maintenance or repairs required to satisfy your end of a landlord-tenant agreement. You’ll also need to have funds set aside to manage the mortgage when you don’t have a tenant, or a tenant fails to pay on time.
- Do you have enough time and patience to look for an ideal investment property – or manage it afterwards? Property investment and management are often like a second job.
- Can you manage financially if your investment is tied up in a sale? Selling property takes more time than selling off stocks, so you’ll need to prepare yourself for this commitment.
- Real estate is considered high risk because you can lose more than you put in. A failed stock investment costs you as much as you paid for the stocks whereas a failed real estate venture costs you your down payment, property inspection and appraisal, time and effort, plus you’ll still be on the hook for the mortgage and related maintenance to the property.
If you are planning to invest in the real estate property it is important that you plan everything wisely. Educate yourself about the process, the requirements, and the location of homes or other types of property you are interested in investing in. Contact a realtor, they can help you locate prime investment properties and make recommendations based on their prior experience what worked best – flipping the property for a profit, seasonal renting, or traditional tenants.
Once you meet all the challenges that come with buying real estate property you will only have to worry about managing your profits.