When deciding where to invest your money, real estate is a good option. Investing in real estate is a popular way of creating wealth. Some investors prefer to buy a property and rent it out to create a monthly income. Others prefer to purchase a property, improve it and resell it for a profit in a short period of time. Regardless of the techniques, real estate investment has a number of benefits.
Low Risk
Real estate provides an investor with a relatively low risk product. If a property is in a decent area and is in decent condition, it will rent or sell. This should create a positive monthly cashflow or a profit when the investor is re-selling the property.
Increased Values
Real estate values will likely increase as improvements are made to a property. Values will also increase as the economy improves. Although real estate values cycle, over the long term values continue to increase which makes investing in real estate a good investment choice.
Leverage
Using other people’s money to make money for yourself is called leverage. Real estate investing is one of few investments that provides leverage opportunities. How likely would it be for a lender to loan money to someone who wanted to invest in the stock market? Very unlikely, however, a lender is willing to give you money to invest in real estate!
Tax Free Cash Flow
If an investor has rental income, it should provide a positive cash flow after expenses. This cash flow is partially or fully tax free due to depreciation that can be claimed against the income. Depreciation is an accounting entry which shows a loss on paper but is a positive tool for real estate investors. No other investment offers tax free cash flow. Also, amazingly, if your paper loss is greater than your annual rental income, you can take the un-used loss against other income you may have such as from another job!
As you can see, there are many advantages to investing in real estate. It can provide an investor with good returns but it is important to know how to really look at the numbers when determining if a property is a good investment. Knowing your cash-on-cash return or the cap rates in your market are extremely valuable tools. Of course, consulting a Realtor who has experience with real estate investing can be invaluable!