WHY YOU SHOULD CONSIDER REAL ESTATE
On top of it being one of the top ways to amass wealth, it is an area of investment that you can have much more control over the outcome. Think about it. If you invest in a stock, bond, or even a mutual fund, you don’t have much control over what will happen.
Let’s say you invest in xyz company’s stock, and then a report comes out about how the CEO approved illegal activities and now the company is up to its eyeballs in lawsuits. That stock price is going to plummet, and you had nothing to do with any of this! You are just a spectator, watching from the sidelines.
With Real Estate, you get to play an active role in how that investment is going to perform for you. Do you want to increase the value of the property? There are specific ways you can do this through renovations, increasing income for a rental property, and even lowering expenses. This is of course assuming you want to be involved and have control over the outcome of your investments. Some people have zero interest in this type of stuff. Unfortunately for them, they won’t get to reap the rewards.
5 KEY REASONS WHY REAL ESTATE ROCKS
There is a simple acronym to remember. Just think to yourself that Real Estate investing is I.D.E.A.L.
Those letters stand for Income, Depreciation, Equity, Appreciation, and Leverage.
- Income
The first point is that Real Estate can help create a stream of income. Most people are focused on saving for retirement. But what does that mean, fundamentally? It means that you are trying to save up enough money so one day you can replace your current income from your job, and then stop working. You just have to get to a point where the income your properties are paying you is enough that you don’t have to work anymore. One of the biggest issues people face when they are doing retirement planning is how to create a stream of income so they don’t have to work.
People work for years to build up a retirement “nest-egg” and then they aren’t sure of the best way to turn that “nest-egg” into an actual income stream. Real Estate helps to alleviate this issue.
- Depreciation
Depreciation is an accounting method that allows you to deduct the value of an asset over it’s useful life. As an example, imagine if a farmer bought a tractor for their business. That tractor is only going to last for a certain number of years until the farmer needs to purchase another tractor. So, the IRS allows the farmer to deduct a percent of the cost of the tractor from their taxes each year as a business expense.
- Equity
Each time you make a mortgage payment a part of it goes toward paying interest on the loan and a part goes toward paying down the principal value of the property. With each payment, you own more and more of the property. If you own rental properties and have properly purchased a good investment, the income from the rentals will pay the mortgage payment, and there will be left over money for repairs, maintenance, and more.
At the end of the mortgage period you will own the entire property, and your tenants will have paid for the majority of the cost.
- Appreciation
On top of the build-up in equity from paying down the mortgage, you will also benefit from the increase in property value.
Over time, Real Estate prices tend to go up in value. From the 1960’s through the early 2000’s there wasn’t a single year of decline in the median home price in the U.S.
Every region of the country is a little different, but regardless of high-appreciating areas like major cities, inflation alone pushes up the costs of most things over time, including Real Estate.
- Leverage
This is the final part of the acronym, and what allows for anyone to get in the game. Leverage is the concept that you can pay for something without coming up with the full cost. For Real Estate, you can use leverage by taking out a mortgage to buy a property and only put down a fraction of the total cost.
Even though you only put down a small portion of the purchase price, you are still entitled to ALL of the benefits. You get to keep all of the income generated, all of the equity build up, all of the appreciation of the property, and you get to utilize all of the tax write-offs. You simply cannot do this with most other investments. There aren’t many ways to buy financial investments with leverage outside of using a margin account, and there are other issues to worry about when using those. But we’re not going to get into that right now.
Source via: Capable Wealth