When people look for healthy and reliable investments, they often choose real estate as their first option. Real estate ensures excellent returns, predictable cash flows, diversification, and tax advantages. And it’s also possible to leverage your property in order to build wealth.
Although real estate investments might require a huge sum to start with, you can also look for favorable home loans that allow you to build your property with a small initial investment.
If you are still unsure whether to invest in real estate or not, here are some good reasons that you should go for it.
Stable cash flow
A monthly cash flow is a net income from the real estate property after you have paid your operating expenses and mortgage payments. A major reason people invest in the real state is its ability to provide them with a stable passive income each month.
Better tax deductions and breaks
Another major advantage of investing in real estate is that you are eligible for many tax deductions and breaks, which can significantly reduce your taxable income. Usually, you can simply deduct the costs of operating, managing, and owning a property.
Moreover, the cost of improving and buying the investment properties can also be depreciated over their useful life. This allows you to benefit from years of tax deductions which help you lower your taxable income. The useful life for residential properties is considered 27.5 years; for commercial properties, it is usually 39 years.
Appreciation of property
Real estate investments help you make money in three major ways: rental income, property appreciation, and any profits earned by property-dependent business operations.
It’s very unlikely that a real estate asset decreases in value over time. Generally, buying a property and selling it later for a better price almost always result in a profit. In addition, if you rent a property, rents also increase with time, allowing you to enjoy a better cash flow.
Build wealth and equity
Equity is an asset that is a part of your net worth. As your equity increases, you have more leverage to buy real estate properties and improve your cash flow. As you pay your property mortgage payments, you keep building your equity. In simple words, one real estate investment attracts another and opens avenues to acquire more assets and increase your wealth.
Diversifying your portfolio
Real estate investments have a great potential to diversify your portfolio. These investments have a very low correlation with other classes of assets. This means that when you add a real estate investment to your portfolio, the diversification of assets can lower the volatility of the portfolio and provide you with a higher return on every unit of risk.
They offer you real estate leverage
Leverage refers to the ability of borrowed capital or financial instruments to increase the potential return of an investment. For example, when you pay only a 20% down payment for your home loan, you get the 100% of the property you are going to buy. As real estate properties are tangible assets, you can use them as collateral to finance other assets.
Most real estate investments have an inflation hedging ability since the relationship between the demand and the growth for real estate and GDP is always positive. As GDP increases and the economy expands, the demand and the value for real estate properties increases and so do the rents.
For this reason, real estate properties maintain their buying power by surpassing the inflationary pressure on the tenants and absorbing some effect of the inflation in the form of property appreciation.
Real estate investment trusts or REITs allow you to invest in real estate without managing or owning a property. These are publicly traded on the stock exchange which generally offers higher dividends than other types of stocks.
This is also known as indirect real estate investment. Where you don’t directly own property, instead, you invest with many other investors while the management company operates and owns the real estate properties.
How does real estate protect you from inflation?
There are 3 significant ways how investing in real estate can help your investment protect against rising inflation:
- Normally the increase in property values is more than that of the rate of inflation, which results in capital gains
- The rents might increase equal to or more than the inflation rate
- Your fixed mortgage payments fall in value over time. For example, you have a fixed payment of $2000 a month; it becomes less valuable as the inflation rate increases. In other words, your monthly payment stays the same while inflationdevalues the worth of money.
Does your primary residence count as an investment?
Generally, you cannot consider your family residence as an investment because you use it as your home. This means that you are not earning a stable cash flow in terms of rents, or you cannot use it as collateral to leverage other investments.
However, if you choose to sell your house for our greater price, you may earn a profit. When this happens, you’ll have to pay taxes on the profit.
You don’t need a large sum to invest
Contrary to popular opinion, you don’t need a huge sum to buy a real estate property. There are many first-time buyer home loans available that offer low down payments and low-interest rates to help you buy your first home.
If you’re looking for affordable first-time homeowner loans in Texas, Z Finance Solutions can help you. Our team offers a range of home loans to help their clients. We also offer real estate investment advice and other new homebuyer assistance programs for potential buyers.
Our experts offer property advice for both residential and commercial properties. In addition, you’ll find home loan services and realtor services all under one roof!
Contact us today to learn more about our services.