5 Reasons Why Investing in Real Estate is a Smart Move

5 Reasons Why Investing in Real Estate is a Smart Move

The broad definition of inflation is; “a general increase in prices and a decrease in the purchasing power of money.” What this means is that is that you will have spend more on a good or service that you used to purchase for less before the rise in inflation. For instance, if 10 years ago, you made 25, 000 dollars and it used to be enough to pay for your bills and give you a comfortable life, that same amount cannot cater for a similar lifestyle today. We can’t control inflation as it is controlled by the Federal Reserve. Since the year 2008, the government has more than doubled its debt, which now stands at over 18 trillion dollars.

The government cannot ensure financial freedom for you or your family. This is something you must do by yourself through having the right mindset and making smart investment decisions. Money, in and of itself doesn’t make people more happy – what it does is it gives people the ability to give your family a better and more comfortable life. A smart investor is one who knows how to handle inflation, leverage his debt, control his physical assets, and most of all, invests in income streams that have a positive cash flow.

Are you thinking of investing in real estate but don’t know where to start? Are you fed up with your money lying idly in the bank making meager returns? Are you (like me) afraid of putting all your savings in the stock market because of its volatility? Are you instinctively looking for a real estate investment that produces income that is visible?

Below are reasons why investing in real estate is excellent for not only protecting your wealth, but also growing it.

  1. Enables you to use leverage to multiply the value of your assets

Real estate is among a small category of investments that enables you to put the banks money into use with relative ease. Once you take a mortgage and purchase a nice home, you can use the newly acquired home to get another debt, which is even two or three times the size of your original equity/down payment. This enables you to purchase more assets with significantly less money and greatly multiply your asset value, while growing equity as you pay down the loans.

  1. Positive cash flow

If you invest in income generating real estate, you are virtually assured of a regular income stream. This is because once a tenant signs a contract, he is basically promising to pay for that space for the length of the contract. So, if you have ten renters who are tied down on one-year renewable leases, you are basically assured of rental income for at least the next one year. This income stream in considerably higher than the dividends yielded by typical stocks.

  1. Rising interest rates could be a good thing to real estate investors

Most homebuyers are delighted when there is a drop-in interest rates. However, a rise in interest rates can be of benefit to a real estate investor. This is because high interest rates make homes less affordable, meaning most people must rent homes. This will increase the demand for rental units, allowing investor to increase the rental rates, hence increasing their monthly cash flow. Whereas it is true that an increase in the federal rate will make investors pay more for properties (because of higher mortgages), it will also enable them to raise rent rates. The increase in rent can be used to settle the relative increase in mortgage and still leave something more for the investor. The demand for rental units will also help keep occupancy stable, meaning a steady income flow for the investor.

  1. Make the most of the physical asset

Real estate that is producing income is among a class of few assets that tend to have a significant value, as a hard asset. The land where the property is constructed has value, the structure itself has value, and the income it generates has value to the current and future investors. Compared to the stock market, income generating real estate investments are more stable – they don’t have green or red days, like the stock market!

  1. Enables you maximize tax benefits

The Tax Code of the United States can benefit real estate owners in several ways. These include depreciation accelerations and unlimited mortgage interest deductions that can enable investors to shield part of the positive cash flow realized from the property. Also, when investors are selling property, IRS allows them a 1031 exchange provision, which defers all their taxable gains into the future. However, you should speak with your tax attorney for more information on this.

No one can guarantee the future values of real estate properties, but as Robert Kiyosaki noted, “real estate investing, even on a very small scale, remains a tried and true means of building an individual’s cash flow and wealth.”

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