To invest or not to invest in real estate? – While Shakespeare didn’t really coin such a popular line, he may have done so if he lived in the modern day and age where real estate has become such a perplexing space to break into, investment-wise. For the novice at heart, here’s a few reasons why it’s a worthwhile market to add to your portfolio and how you can succeed in your venture. Bear in mind that these reasons are purely objective and are unbiased towards the real estate market.
Property is one of the few financial assets that can easily be leveraged through a loan. The ability to make a small initial payment, leverage your investments, and as a result amplify your overall ROI is quite impressive. With all else being equal, property investors are able to borrow more when using real estate as collateral relative to using a stock portfolio. In fact, banks and private institutions will lend up to 30 percent more of the value of a property portfolio than they will the value of a stock portfolio.
Simpler to Research
Unlike stocks and currencies that have all sorts of fundamental drivers and data points you need to keep updated, investment property involves only a few key factors for buying and selling your holdings. Stocks, on the other hand, involve a steep learning curve before one can methodically and consistently extract profits. Depending on the property niche you are looking to partake in as well as future investment goals you have in mind, the research data you will be collecting and analyzing may vary. Luckily, real estate software is nowadays very high-tech and covers all the fundamental and specific steps crucial for investing.
Investing in real estate effectively distributes capital risk. Properties have had historically low if not negative correlation with other financial assets. This means times of volatility can still produce higher ROI relative to the risk involved. Balancing your portfolio with properties and stocks can be difficult, albeit. Make sure to plan ahead and look for property investments that can hedge against future stock volatility.
One of the most attractive characteristics of real estate investment is its stable income return. Over a three-decade period which began in 1977, nearly 80 percent of overall US real estate returns were rental income-based. Income-based assets are actually less volatile as an investment compared to assets whose returns are based on capital valuations.
High Safety Rating
Housing is a relatively safe investment hence the age-old phrase “safe as houses”. According to http://www.yourinvestmentpropertymag.com.au/, the rate of increase in property valuation was comparable to that of the stock market since the late 1920s, approximately 11.4 percent per year. What makes this even more remarkable is that the consistent boost in valuation occurred during a series of economic disasters including wartime and recessions.
Attractive Tax Benefits
Rental units provide investors with a great opportunity to write off personal expenses to valid business deductibles. Keep in mind that rental properties are a form of business, which means expenses incurred in visiting and maintaining the units can be legally deducted from your annual taxes. This increases not only the tax benefits for your cash flow but also for the future resale value of the property.
Huge Retirement Nest Egg
Rental properties act somewhat as a forced retirement plan. People are naturally horrible financial planners and, even worse, money savers. People lack the willpower and self-discipline to deposit money into their IRAs and 401Ks. As a result, the tax benefits and the compounding effect tend to be weaker than the potential growth from maximum monthly deposits. A rental property is a big-ticket item, which ultimately forces you to be wiser, more disciplined, and more committed towards your portfolio.
There are many other advantages to picking up property as an investment. Aside from the ones aforementioned, you also have the fact that demand for rental units owned and managed by private landlords is increasing. Investing today also strategically positions you to acquire homes that were recently foreclosed and are therefore substantially cheaper. To get started with your real estate investment, start drafting a short-term and long-term plan. Attend open houses and talk with brokers who can help show properties that are up for grabs.