Why Real Estate Investing will Always be Attractive
Investment in real estate can be easy and understandable of almost anyone.
17:07 18 December 2020
Investors can easily purchase property through cash investment or financing through the bank. Investors can also easily improve their real estate investment through property improvements. There are also a lot of tax benefits that come with real estate investing. Real estate is looking like a better investment option for the average American. This resource explains how entrepreneurs can start a real estate investing business. Below we list the reasons why real estate investing is so attractive.
Predictable Cash Flow
Cash flow is made when all expenses and mortgage payments on the property are paid and there is still spendable income left. A good investment property provides investors with 6% or higher cash flow.
Appreciation in Value
Property always appreciates in value. Since the late 1960’s appreciation levels have been constant at 6% per year. This is true even in the downturn and economic crash in 2007.
In real estate, leverage is when a mortgage loan is used to reduce the amount of capital an investor has to give to purchase a property. Once an investor has built up an equity position in investment properties they can leverage the investment for cash. This can be done in two ways. The first is to secure a second loan against the increased equity. The second is to refinance the original loan amount plus the increased equity. Through doing this, investors free up money to buy more property.
Many real estate properties are bought through financing and small down payments. The principal mortgage amount is paid down slowly and that speeds up more rapidly as time passes and the end of the mortgage loan period is approaching. This makes it a great way to build equity.
Real estate is improvable, investors can improve their investments. Value can be added to any property by repairs, structural or cosmetic improvement. This makes the investment higher.
Real estate coincides with retirement, this makes it one of the best investments. At the time real estate is purchased cash flow is lower and the principal reduction on the mortgage is less. Over a period of time the mortgage is paid down, and paid off and cash flow increases. This serves as a savings program for retirement.
There are many tax benefits to having real estate investments. the gains an investor gets from selling one property can be deferred to a newly purchased property. This saves the investor on paying taxes on the sold property.
Real estate has lower tax rates than personal tax brackets. If a property is sold after a year the tax bracket is usually 15% or 20%, lower than the personal tax bracket.
Real estate is subject to depreciation. Depreciation is a non-cash expense that has a tax code, depreciating the value of an investment property over time. The value of the property does not actually depreciate but appreciates. The depreciation of investment property allows investors to have a larger positive cash flow while reporting a lower income for tax purposes. This creates an even higher return.
Certain tax codes allow additional deductions for expenses incurred when owning real estate. Expenses like maintenance, improvement, interest paid and upkeep can be offset to the income made on the property. This reduces the overall taxes.
Investing in real estate
Real estate investing has many benefits. It even carries more benefits over stock markets and cryptocurrency investments. It creates predictable cash flow, it appreciates in value, keeps up with inflation, has equity growth. It takes some money to invest in property. But the investment is worth it. Real estate investment is not as risky as stock markets. Purchasers should just be weary of certain factors before buying real estate. Factors like area and price need to be considered. One should also compare properties with each other making sure you are investing and getting the best for your money. Also look at rental income in the area as that can play a role in whether the property is a good investment for rentals. Real estate takes time to make profit for investors, be smart, informed and patient.