An estimated 29 percent of Americans say that real estate is their top choice for long-term investments. With news about rising home prices and mortgage rates making the rounds, you may wonder whether this investment vehicle is worth getting into. However, investing in property offers numerous benefits from a long-term perspective. Indeed, real estate remains a popular option for many people looking to build personal wealth and secure their financial future.
Here’s why real estate is a valuable long-term investment.
CASH FLOW
One of the main goals of investing is to make gains from the investment. When you own a home to live in, you will save the money that would have otherwise been spent on rent, contributing to a positive cash flow. If you rent the property, you have an assurance of regular rental income. This makes real estate a good source of passive income.
Since you get your money working for you, investing in property helps free up your time and improves your financial security and gives you more control over your work life. Similarly, you will have a consistent stream of income even when you can no longer work.
GREAT RETURNS
Compared to other asset classes, real estate yields great returns without as much volatility. With properties, there aren’t many factors beyond your control that can negatively impact your investment. This goes a long way in ensuring the security of returns.
When correctly managed, real estate can deliver great returns in the long run. Whether you own a home to live in or rent out, you will likely make money through capital appreciation. This is a return you will realize when you sell the house. When it comes to rental properties, rents tend to rise every year. Buying and holding real estate allows you to increase your future cash flow.
EQUITY BUILDING
Real estate has a high tangible asset value. Unlike other investments that depreciate or can dip to zero, the value of your land or building will oftentimes increase over time. There are historically a few times when homeowners will take losses on the properties they bought. However, housing market downturns are rare events. Generally, as the property appreciates, so does your equity.
Every time you make mortgage payments, you gain more equity in the property. You can use the equity to acquire various financial instruments that will enable you to increase your real estate portfolio. That way, this type of investing will help you create financial stability.
TAX BENEFITS
Owning real estate comes with a host of tax benefits. As a property owner, you can deduct some of the expenses of owning real estate from your taxable income. These include:
• Property taxes
• Mortgage interest
• Property insurance
• The costs of ongoing maintenance and repairs
• Depreciation
• Property management fees
• Homeowner association fees
When you finally sell the property, the gain you realize will be taxed as capital gains rather than an income. Typically, capital gains are taxed at a lower rate than ordinary income.
HEDGE AGAINST INFLATION
Suitable investments should help buffer against inflation. With real estate, the value of assets often grows either in tandem or faster than the inflation rate. Similarly, you can adjust rents over time based on the movements in inflation rates. With a rising monthly income and appreciating property values, inflation will not erode your wealth. This goes a long way in helping to protect you financially.
A RELATIVELY LOW-RISK INVESTMENT
Real estate is one of the safest long-term investments. This type of investing is secured by the asset itself, which is the building.
The market is mainly steady, making it rare to see your investment lose value. Similarly, empty lots and properties will always be worth something, even when the market crashes. This reduces the risk of investing in real estate, making it a safer option.
DIVERSIFICATION
Because land and properties are safe tangible assets, they can help you diversify your portfolio and spread the risk. This protects you from losses in the event of economic turmoil.
Moreover, there are many ways to invest in real estate. Apart from buying your own home, you can:
• Purchase rental properties and become a landlord
• Invest in a real estate investment trust (REIT)
• Invest in real estate limited partnerships (RELPs)
• Use an online real estate platform that connects developers with investors
MULTIPLE EXIT OPPORTUNITIES
Although land and property are illiquid assets, you can use specific exit strategies. Besides selling the property, you can refinance, recapitalize, lease or offer it on seller financing terms. If you own multiple units, you can always live in one of them if needed. Lastly, you can pass the asset down to your heirs. Considering the numerous ways that this type of investing can help build wealth, it is clear why many people still consider real estate an excellent long-term investment.
