Deciding to invest in real estate is significant and requires careful consideration, but it’s also among the smartest moves you can make.
There are various ways to use your capital to increase your net worth and secure your financial future. Here are 13 reasons why real estate stands out as the best investment choice.
1. It’s a Tangible Asset
Investing can be daunting, especially with assets like stocks or cryptocurrency that you can’t see or touch. In contrast, real estate is a tangible asset you can see, feel, and control.
This tangibility offers investors peace of mind. You can renovate, repair, or sell the property, maintaining control over your investment.
When you sell stocks, their value is out of your hands, dictated by market prices and demand. While the real estate market influences property values, you have more opportunities to enhance the property’s value and achieve greater capital gains.
2. Real Estate Provides Cash Flow
Investing your money is a significant decision, and waiting to see returns can be frustrating. Real estate, especially when used as rental properties, provides cash flow. You earn monthly rental income and potential profits from selling the property.
Though vacancies and problematic renters must be considered, real estate typically offers more consistent cash flow compared to other investments like stocks or ETFs.
3. Real Estate is a Hedge Against Inflation
As inflation rises, the purchasing power of the dollar decreases. However, the value of properties and rental prices usually increase.
Owning rental properties allows you to charge higher rents when leases renew or new tenants move in. You can also achieve higher profits when selling the property during inflationary periods due to increased costs.
Conversely, stocks often lose value during inflation because companies struggle. They must raise prices to cover higher costs, but with consumer spending down, stock values typically decrease.
4. Real Estate Investors Enjoy Tax Deductions
Real estate investors can often benefit from tax deductions unavailable to stock or bond investors.
Common deductions include depreciation (over 27.5 years for residential buildings and 39 years for commercial buildings), mortgage interest, maintenance and repair costs, property taxes, and travel expenses.
However, tax deductions can vary based on location, property ownership structure, and other tax factors. Consult with a tax advisor to maximize your real estate tax deductions effectively.
5. Leverage Your Investment
In most investments, you can only invest the cash you have, but real estate allows for leveraging through mortgage financing.
For instance, if you want to buy a $200,000 home but only have $50,000, you can use the $50,000 as a down payment and finance the remaining amount. This enables you to acquire a $200,000 property without needing the full amount upfront.
While margin investing is an option in the stock market, it is more complex and not accessible to everyone. Mortgage financing offers greater flexibility and is available to many investors.
6. Property Appreciation Potential
Investing always carries some uncertainty, but real estate offers a higher likelihood of appreciation if you invest wisely.
Unlike stocks, where you can’t guarantee value increases or company stability, real estate can appreciate if you choose properties in areas with a history of rising values.
You also have some control over property appreciation by making upgrades or renovations. Collaborating with a reputable real estate agent can help you invest in areas with promising appreciation potential.
7. Real Estate is Independent of the Stock Market
A key principle in investing is diversification—spreading your investments across different asset types to minimize risk. Incorporating real estate into your portfolio increases your chances of capital gains, regardless of stock market fluctuations.
When the stock market crashes, real estate values don’t necessarily follow suit, ensuring your portfolio retains value even in turbulent times.
8. Predictable Cash Flow
Stock market investments offer unpredictable returns and usually don’t provide regular cash flow unless you invest in dividend stocks, which are also subject to variability based on company performance.
Real estate, on the other hand, offers more predictable cash flow. You control the rental income and other collected monies, giving you a reliable monthly income stream. While exact capital gains are uncertain, you can anticipate consistent monthly earnings.
9. You Build Equity Over Time
Whether you finance your investment with a mortgage or pay for the property outright, you build equity through mortgage repayments and the property’s natural appreciation.
Equity represents the money you would earn if you sold the property today. This equity enhances your net worth and typically grows each year you own the property.
10. You Have Many Options
Real estate investors have a variety of investment opportunities. Beyond passive options like REITs and crowdfunding, active real estate investment options include:
- Buying and renting properties to tenants.
- Purchasing commercial properties and leasing them to businesses.
- Fixing and flipping properties for quick profits.
11. Real Estate Investments Provide Security
Investing in stocks can feel uncertain, as you rely on a company’s success and stock value growth, which is inherently risky.
In contrast, real estate offers a tangible, appreciating asset. This provides peace of mind, knowing you own a property that can be sold to liquidate your investment or retained to continue growing in value.
12. You Can Borrow Against Real Estate
As you build equity in your real estate investments, you may be eligible to borrow against that equity. This allows you to access a portion of your investment’s value without selling the property.
In contrast, liquidating a stock investment requires selling your shares, meaning you can’t continue to own and benefit from their appreciation as you can with real estate.
Conclusion
These 12 reasons highlight why real estate is the ultimate investment, making a strong case for diversifying your capital into this asset.
Whether you’re considering your first real estate investment or looking to expand your portfolio, the numerous benefits—including access to equity, cash flow, and a tangible asset that you control—make real estate an excellent choice.
