Property investing is a great investment. Investors can get predictable cash flow, great returns, tax benefits, diversification, and the ability to leverage real property to build wealth.
Are you interested in investing in real-estate? Here are some facts and figures about real estate, as well as why it’s a good investment.
Cash flow is the net profit from real estate investments after paying all mortgage payments and operating costs. Cash flow is an important benefit to real estate investment. Cash flow can increase as you pay down your debt and build equity.
Tax deductions and tax breaks
Real estate investors can benefit from a number of tax deductions and breaks that can help them save money. In general, you can deduct the reasonable cost of owning, operating, or managing a property.
Furthermore, the cost of buying or improving an investment property is depreciable over its useful lifetime (27.5 years for residential properties; and 39 years commercial properties).12 You also have the option to use a 1031 Exchange to defer capital gains.
Real estate investors make their money by renting income, the profits of property-dependent activities, and appreciation. You can make a profit on your property when it’s time for you to sell. Real estate prices tend to increase over the long-term. You can also expect higher cash flow if rents rise in the future.
Wealth and Equity
Your equity, which is part of your networth, increases as you pay down a mortgage. Additionally, equity can be leveraged to buy additional properties and increase wealth and cash flow.
The diversification potential of real estate investments is another advantage. Real estate has a low–and in some cases negative–correlation with other major asset classes. This means that real estate can be added into a portfolio with diversified assets to lower portfolio volatility and provide higher returns per unit of risk.
Real Estate Leverage
Leverage means the use financial instruments (e.g., loans) to increase an investment’s return potential. If you put 20% down on a loan, you can buy 100% of the house you want. That is leverage. Financing is easily available because real estate can be used as collateral.