This article is part of our guide on how to invest 1 million dollars for income, available here.
Real estate is the single best investment you can make. But why? Buying property provides multiple benefits, and if you’re on the fence about whether a property is the best investment, this blog post will convince you otherwise. We’ll discuss what property has to offer, how much it costs to invest in property, and more!
If you want to start building wealth for yourself and future generations, buying your first real estate investment should be the top item on your list! Whether you’re thinking of buying your first rental property or are already a veteran, investing in property is hands down the best investment. Real estate provides several benefits that other assets simply can’t compete with.
Key Takeaways
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Most people invest in real estate without even realizing the incredible tax benefits that come with it.
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You can borrow a large amount of money and use the property you buy as collateral. This allows you to invest in assets that would be otherwise too expensive.
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Historically real estate has withstood the test of time and has proven to not only still exist but also hold its value and continually appreciate past the rate of inflation.
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Depending on the asset class, location, purchase price, and several other factors, comparing any two property investments to one another can look very different.
Real Estate Provides Strong Security
Unlike investing in stocks and other investments, the property is tangible and concrete. It can’t be wiped out overnight by a stock market crash or another economic event. When you invest in real property, you’re investing in something physical that you can see and touch, and it’s the only physical investment that can never be misplaced or stolen. The security of real estate is unmatched in comparison to other investments.
Historically real estate has withstood the test of time and has proven to not only still exist but also hold its value and continually appreciate past the rate of inflation. It makes a lot more sense to invest in something you know will be there in the future.
The most popular alternative to rental properties is stock investing, which is considerably riskier owing to the unknown future existence of publicly listed firms.
There are Huge Tax Benefits for Real Estate Investors
When you invest in property, you are provided with tax benefits. Most people invest in real estate without even realizing the incredible tax benefits that come with it. The main tax benefits of property investment are depreciation, capital gains tax breaks, and interest deductions. Property investors can take advantage of these tax breaks, resulting in thousands or even hundreds of thousands of dollars in tax savings each year.
Depreciation
Depreciation is a massive advantage to real estate investors. In the United States, real estate investors can deduct a portion of the value of the structure of their real estate assets and use the depreciation expense to offset their income. In most cases, investment property owners will legally pay very little to no tax to the IRS.
1031 Exchange
Another tax benefit, the 1031 exchange, allows investors to defer their capital gains tax. You’re typically taxed on the profits when you sell an investment property. However, with a fair exchange, you can defer those taxes and reinvest the money into another property of equal or greater value. This is another great advantage.
Interest Deductions
Investors can deduct their interest expenses if they have a mortgage which is the most frequent technique to acquire property. If you keep your property for several years, the interest deduction can add up to hundreds of thousands in tax deductions.
Property Provides Leverage. With Property, You Can Borrow
You can borrow a large amount of money and use the property you buy as collateral. This allows you to invest in assets that would be otherwise too expensive. You can buy better (or more) assets to produce more income! Even though borrowing money means you’ll have to make mortgage payments, the extra rent collection makes it worth it.
You’ll be getting a higher rate of return on your investment rather than buying something without leveraging. Many other investments don’t have leverage as an option, and if they do, the terms of the financing options might not be as advantageous as real estate because of the security that comes with it.
Cash Flow from Rental Properties
Another great benefit to real estate investors is the cash flow that comes from rental properties. As a property owner, you can collect monthly rent checks, which provide passive rental income for your investment property.
This property income is an excellent source of cash flow and includes liquidity that can be used to pay for more property acquisitions. As you purchase more rental properties, you’ll witness the power of the compound effect and create wealth faster than you could have imagined.
Generating income from collecting rent can be an easy way to achieve steady recurring monthly payment. It’s important to note that the benefit from cash-flowing rental properties only applies to investment properties with a solid ability to generate income at a greater rate than the mortgage interest payment and operating expenses associated with the property.
Most investors choose to invest in real estate for this reason. Not all real estate investments are created equally, and anyone wanting to make a good investment must do their homework on the real estate market they’re buying in.
Selling Something People Need
To take things one step further, real estate is something people need. Everyone lives somewhere, and that somewhere is real estate. This is another advantage of owning property. You can rent to someone who needs what you have rather than something they want. A property is a product that provides shelter to those who need it and an income source for the property owner!
Appreciation
One of the main reasons people get into real estate investing is because of the potential for appreciation. Over time, property values have consistently increased as opposed to other investments. This can be seen during the recession and economic hardship when asset prices fall, but property prices still hold their value.
In most cases, property values increase at a rate much higher than the inflation rate. So even if you don’t need or want to sell your property right away, you can still benefit from increased property values over time. To guarantee the value of your asset goes up, you need to buy below market value.
Commercial Real Estate
Commercial properties differ from residential properties in how they are valued. When you buy commercial real estate, you could raise the value drastically by roughly 16-20 times if you can find a way to increase the net cash flow.
For example, a rental property that generates $10,000 net per month would net $120,000 per year and might be worth something like $2,000,000 (6% CAP rate). If you increased the monthly net income by $2,500, or $30,000 per year, you would raise the property value by 16.66 times $30,000. This means the investment property value would be worth $500,000 more. Either decreasing expenses or increasing income can do this extra net income.
Doing this quickly in a short period is called forced appreciation. This is a massive advantage to not all real estate but commercial real estate.
The Best Rental Property: Multifamily Real Estate
Multifamily real estate provides a significant return on investment and is one of the best investments you can make. Not only is property the best investment, but within the conversation of property, the multifamily property is the best investment because it provides cash flow, security of property value, and appreciation that you can be partially in control over. After all, the value is tied to the income that it generates.
The only problem most people face with multifamily rental properties is that they are not cheap. This investment property costs millions of dollars, and you typically need a 30% down payment. Although costly, you can still invest in them through real estate syndications.
A syndication is a group of people who pool their money together to invest in a property. If you don’t have millions of dollars lying around, this is the best way to reap all of the benefits and the bonus of being hands-off, as this is a passive form of investing.
Things to Consider
It’s essential to remember that although property investments are the best, not all property is created equally. Depending on the asset class, location, purchase price, and several other factors, comparing any two property investments to one another can look very different.
You’ll also need to figure out what kind of property investing suits your goals. If you’re looking for rental income year-round, investing in a rental property that will generate income every month is a much better idea than investing in a pre-build, vacant/raw land, or any real estate that doesn’t produce income or enough income to pay all of its expenses and some.
As a general rule of thumb, if a property can collect 1% of the monthly purchase price in gross rental income, it will probably cash flow and serve as a solid investment property. Many investors agree that a good investment can provide consistent returns (cash flow) AND increase in value simultaneously versus investments that only rise in value, like a physical bar of gold.
The Best Time to Buy Real Estate
So when is the best time to invest? The sooner, the better. You should also know that, unlike the stock market, “time in” the market is better than “timing” the market. The benefits, aside from appreciation, are very beneficial for investors to buy even without an increase in property value. In real estate, price fluctuations aren’t ordinary and don’t happen as fast. The exact day or time you purchase real estate isn’t all that significant. Just know that as soon as you buy an investment property, you have gained a hedge against inflation.
Frequently Asked Questions About Is Real Estate Worth it
Yes, real estate is a very stable and safe investment over time. It has been around for centuries and will continue to be in high demand as people always need a place to live. It also provides cash flow, security of property value, tax benefits, and has lots of appreciation potential. Many people rely on holding real estate investments for their retirement.
Yes, property investment is a significant investment now and will continue to be in the future. The market may go up or down, but the property has consistently increased in value over time.
The answer to this question isn’t something so arcane as “your mortgage tax deduction,” which only a few understand, but instead, that housing has been the best long-term investment for five decades in America. Your real estate is the investment that will never let you down. It’s not a stock or a bond. When interest rates are low, your property is an asset with substantial cash flow potential. , an instead,fiveInflation hurts investors of stocks and bonds along with virtually every other economic measure (education costs, health care costs, food prices), but real estate values tend to increase over time despite inflation.
Property is the Best Investment - Conclusion
The best investments are the ones you don’t have to think about. And when it comes to investing, there is no better investment than property. You can’t lose money on a real estate deal if you purchase it at the right price in the correct location. Property is a tangible asset you can see and touch, making it easier to understand than other types of investments. Real estate has also been outperforming inflation for years which is why it is an excellent investment.
If you’re looking for steady income from rental properties, the multifamily property is, without a doubt, the way to go. You can invest in syndications that will give you all the benefits of property ownership without having to come up with millions of dollars or be the property manager yourself.
Remember that not all investment properties are created equally, so do your research before making a real estate investment. But always remember, the sooner you invest, the better!
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