Below are the 10 reasons to invest in real estate, this information is every where and nothing new here.
My favorite reason, outside of those listed below, to invest in real estate is the approachability of the business. Most of us can learn and comprehend the rental business faster than any other investment. While it's not easy or for the faint of heart, buy and hold real estate investing is simple enough to do part time, yielding excellent returns over the long term. Provide a safe, clean & warm living environment, run your business fairly and ethically, and patiently grow your wealth over the long term.
Before we get into the list, I want to make an important distinction. This article is about Buying & Holding Real Estate. This will make you a real estate investor, aka a landlord. Not a fix & flip investor, not a developr, not a wholesaler and not a homeowner (although you may be these people as well).
This article is for intentionally purchasing real estate you never intend to live in, don't want to live in and plan to rent to others for the next 10+ years.
Here are the 10 Reasons to Invest in BUY & HOLD Real Estate.
Reason #1 - High Leverage
Real estate is one of few investment vehicles with the availability of high leverage via financing. With a real estate secured loan aka a mortgage, you are able to control a $1million asset for only $200,000 out of pocket.
Reason #2 - High ROI
With this high leverage comes the ability to earn a very high return on investment. With leverage, your cash on cash return goes up. With appreciation, the entire asset appreciates rather than just the down payment amount you invested. Speaking of appreciation...
Reason #3 - Appreciation
All real estate investors assume some appreciation. Real estate is an asset class that appreciates. Yes, the market cycles & timing is important, but over the long term (hence the word HOLD in the term BUY & HOLD), it is safe to assume appreciation.
Reason #4 - Passive Cash Flow
Investing in real estate, when done with the right intentions & analysis, investors can achieve mostly passive cash flow. I will take some heat for this statement, even with great property management in place, the investor will need to be somewhat involved, even if its an annual meeting with the Property Management to ensure proper marching orders are in place.
Still, investors make good returns while playing a very hands-off roll in the investment.
Reason #5 - Tax Wise
Owning real estate allows for the deduction of mortgage insurance as well as the depreciation of the property itself. You can build wealth through 1031 exchange opportunities, to defer tax liabilty to continue investing funds in new properties, deferring tax liability... forever.
Reason #6 - Mortgage Paydown
You've leveraged an asset, are earning a little cash flow over & above your mortgage payment and other operating expenses, BONUS- Your tenants are also paying off your debt, the amount you leveraged to purchase the asset in the first place! The longer you hold the property, the higher the percentage of your mortgage payment is being allocated to principal paydown.
Reason #7 - Rent Increases
Rent goes up, every year. Tenants and landlords alike know this, its one of the reasons we encourage tenants to buy their first house, if they can, pointing out most analysts expect rents to continue to increase over the coming years. Owning investment real estate provides you with the opportunity to increase future cash flow by increasing rents thereby....
Reason #8 - Protecting Against Inflation
Owning investment real estate and using leverage (especially at these low interest rates) is a great way to hedge against coming inflation. If prices rise, so will the cost of housing, owning an asset that rises with the tied is a great way to protect your wealth.
Reason #9 - Retirement Plan
Over a 20 to 30 year period, the prospect of living off rental income into retirement years is incredibly likely. With a well executed plan, you can purchase 1-2 units per year, trade up with 1031 exchanges by timing the market, and be well positioned to retire wealthy (ideally a bit early!) . Investors can own multiple properties Free & Clear, create a net worth well into the millions, and live off the cash-flow generated from these assets.
Reason #10 - Multiple Exits
Investment risk is minimized when you buy a rental property; I take some personally security in knowing that, if worse came to worse, something terrible happened, I could always go live in one of my units if I needed to. Short of this type of crisis, if you needed capital out of your investment, there are multiple ways to sell or access capital to maximize your profit You can sell your property, re-finance, lease your properties, offer your properties on seller financing terms, or lease option to a tenant buyer.