To become financially secure, do what financially secure people do. So, this raises the question – what do financially secure people do?
Most of them recognize the importance of real estate and make investment decisions in this direction. To emphasize this point, the renowned American business mogul John D. Rockefeller said, “Ninety percent of all millionaires become so through owning real estate.”
Many other renowned and wealthy people have over the years highlight the importance of serious investment in this market. Andrew Carnegie, Mark Twain, Louis Glickman, Kiyosaki, and Suze Orman are some notable examples. You can check here to find out more about what these and other renowned people have to say about this kind of investment.
All of the above is to help ensure that you understand the benefits personally, as it is only then that you can understand the need to act like these people have acted. To this end, this article will discuss some of the said benefits.
The Benefits of Investing in Real Estate
Investing in real estate is about profit generation from property sales or rentals. The process, however, involves purchasing, gaining legitimate ownership, and then managing the property effectively.
Considering the consistent demand for real estate, numerous opportunities exist, including ownership of residential buildings (otherwise known as home apartments), commercial buildings, and even mere land ownership. Broadly speaking, this investment venture offers several known benefits, some of which we discuss below:
Capital Gains
The main reason for real estate’s profitability is its consistent value appreciation. This value appreciation in real estate properties, which eventually provides capital gains for investors, stems from several factors, including:
Population Growth and Demand
Factors like increased mortality and immigration rates will continue to increase the nation’s population. For a graphic representation of the nation’s population growth over the years and other related stats, you can visit: https://datacommons.org/.
Land and landed properties, on the other hand, will become or will increasingly become scarce. In other words, demand for real estate property will eventually or increasingly (as applicable) surpass its supply. This would then increase the value of these assets, thereby generating capital gains for their owners. It is simply economics, as an asset’s value will likely increase when demand exceeds supply.
Economic Development
The value of a real estate asset varies, with several factors influencing it. Economic development around the asset’s location significantly influences its value. Improved infrastructure, job creation, and other factors lead to an increase in economic development in more locations, which is a good thing for investors in the real estate market.
Property Improvement
Many factors that determine a real estate asset’s value are external. In other words, investors have little or no control over such factors. However, internal factors, and equally important ones, also play a role. For example, property improvements like renovating and adding highly desired and valuable features can increase a real estate property’s value.
Despite its profitability, this investment venture might require a long-term commitment, as we noted earlier. This is why individuals looking for quick wealth may have to look elsewhere for more suitable ventures.
Cash Flow
Some people define real estate investment as simply buying these assets, owning them, and then selling them for capital gains. While this is true, it is not the complete truth. This is because capital gains can also be achieved through rentals, and there are unique advantages involved.
Although it usually takes more time to achieve capital gains this way, it offers a benefit that property sales might not offer. It is the advantage of patronage and cash flow, which are connected.
You see, people do not just buy real estate properties because they want to. The purchase of these assets equally depends on their affordability. Unfortunately, many people find buying properties unaffordable. This is even with flexible mortgage plans being available.
Renting a property offers an advantage since more individuals possess the capability to rent compared to purchasing. It typically generates cash flow faster than selling, providing yet another advantage.
In addition to this, rental prices can go up just as appreciation can increase the price a property can be sold. Bearing all these in mind, the rent or sell question is something to seriously answer. It enables investors to make informed decisions by reflecting on their needs and expectations.
Tax Advantages
You can leverage tax-related benefits in many locations despite real estate investments being taxable. For instance, you can claim significant reductions or even write-offs for several expenses when filing taxes, including:
- Insurance
- Property Taxes
- Mortgage Interest
- Repairs and Maintenance
- Property Management Fees
Investors can fully enjoy this privilege through various programs. The 1031 exchange, for example, allows you to defer capital gain tax. However, you need to understand that terms and conditions apply, and adhering to them is essential to prevent penalties.
The 1031 exchange, for instance, focuses on continued investment within the same portfolio, among other requirements. The point is to thoroughly understand the requirements so you can avoid violating them.
Proper Use of Borrowed Funds
Broadly speaking, two kinds of people do not invest in real estate. The first group lacks awareness of its benefits, while the second lacks financial capability, even if they know the benefits.
For the second category, the good news is that they can leverage borrowed funds for this purpose. You can find several creditors willing to lend to such people. The borrower, of course, needs to qualify based on certain criteria.
To sweeten the deal, some real estate sellers accept a down payment and let buyers pay the remainder in installments. All these credit opportunities offer leverage, especially given this investment venture’s benefits.
Conclusion
The profitability of real estate investment over the years demonstrates its significant offerings to investors. However, to succeed, you need to understand current trends and industry dynamics. You can learn more about real estate investing from more experienced players. You can find many of these resources online and offline.
The capital-intensive nature of this investment makes it important to be fully informed if you wish to succeed. So, do not act blindly in this industry. Get the right information so you can make the right decisions.
