Let’s face it. Real estate is one of the most stable investments you could even own. It has created the most millionaires out of any other investment in America. The good news is that there are many forms of it. You could get started with wholesale, commercial, single family, multifamily, etc. The list goes on and on. In today’s article, I am going to be breaking down why real estate is so important from an investment perspective and how it can help you.
Real estate has got to be one of the safest passive income streams known to man. Why? Because the majority of society needs a place to live! This means that housing and lodging are always going to have pretty high demand, unlike other business models. Think about it. You could be in the middle of a recession and a tenant in one of your properties could still be paying. In a way, it is recession-proof. This isn’t the same for all businesses or investments, especially when you look back to 2008. Stocks collapsed along with other businesses while savvy real estate investors had the opportunity of a lifetime to buy up property. In the end, once you buy it, all you have to do is maintain the property and make sure the property is full. If you don’t feel like doing this, a property manager is always a safe bet.
Asset class diversification
Many financial planners and gurus alike talk about diversifying your assets but not really your asset classes. For example, you may own several stocks thinking that you are diversified. The problem is that you are only diversified in one asset class. The whole market could crash and although you’d be better off than many single stock investors, you wouldn’t be better off than those with asset class diversification. Because real estate is so stable, it will help offset some of the volatility that comes along with a crazy economic cycle. You won’t see massive returns but rather steady ones. What’s even more diversified is when you have multiple properties in different cities around the globe. In the end, this is all for the stability of the investment. If you are chasing fast money and overnight returns, then real estate isn’t for you. If you want safe, stable cash flow every month, look into it.
Like I said earlier, real estate has created the most millionaires in America throughout history. Also, a huge pass down of wealth is going to happen when the kids of today’s generation inherit their parents home or other properties when they pass. This is one of the main reasons why I am not worried about the younger generation. Plus, anyone can go out there and save a few thousand dollars and put a down payment on a house. Start establishing great credit and show proof of income. This is going to be one of your best bets to into the real estate game early. I know kids as young as 20 who have purchased their own property and are “house hacking”, something I’ll delve into later. In the end, start networking with local real estate agents and investors and get their take on how to get into the game. It is one thing to read about it but it is totally another thing to learn about it from someone who is actively doing it.
Hedge Against Inflation
On average, the rise of real estate has beat out inflation. Yes, there are other investments that do this and provide better returns, but they are not as stable as real estate. Plus, most of them don’t provide the added cash flow that real estate does. If you aren’t going to put your capital into a high-interest savings account like Ally bank or something, get it into real estate or something else that with protect you from inflation. Inflation is a hidden tax that hardly anyone ever factors in. This leads me to my next point. Taxes!
Real estate provides a myriad of tax advantages that many other investments don’t. Growing up, we normally hear about the tax advantages of having a kid or investing in a Roth IRA but never about real estate. First, real estate has tax-deferred growth meaning that you only have to pay taxes on the gain in the value of the property when you go to sell the property. If your property increases from $80k to $85k in a given year, you don’t have to pay taxes on that five thousand that you earned in capital gains unless you were to sell it. Next, you can receive many tax breaks for owning properties. Finally, real estate can allow you to deduct from your personal income taxes. This can be through the cost of operating and financing the property along with all of the maintenance, mortgage interest, repairs, etc. In the end, I would consult a tax professional about any real estate tax questions.
Leverage is one of the best things about real estate investing. You can purchase a $100k home by only putting $20k down or even less. And you get to enjoy all of the capital gains that that property accrues over time. If it is a rental, your tenants are paying down that mortgage while you aren’t. Finally, you can leverage other people’s time and save your own time by hiring a property manager. In the end, it is a win-win for everyone.
House hacking is when you buy a home, say a three bedroom home, and rent out the other two rooms while you live in one of them. This is especially great if the two of them are paying down the whole mortgage entirely. After the house is all paid for, you could leverage the equity in the home and do it to another property. In the end, the opportunities for real estate are endless. I’d highly recommend looking into a Brisbane Property Buyers Agent for more info on real estate.