Why Property Makes a Lucrative Investment
Are you considering making a real estate investment? Here is a quick overview of all you need to know about the advantages of real estate and why it is a good investment.
Predictable cash flow, excellent returns, tax advantages, diversification, and the possibility of leveraging real estate to build wealth, are some benefits you can enjoy with carefully selected assets.
- Rental revenue, appreciation, and earnings created by commercial activities that rely on the property are all sources of profit for real estate investors.
- Some benefits of property investment are passive income, stable cash flow, tax advantages, diversification, and leverage.
- Real estate investment trusts (REITs) allow you to invest in real estate without having to own, run, or finance properties.
Real Estate Investment Trusts (REITs)
REITs are a great alternative if you can’t commit to property ownership and management or are apprehensive. On major stock exchanges, you can buy and sell publically-traded REITs, most of which commonly trade under high volume, allowing you to get into and out of a position quickly. REITs tend to offer higher dividends than other stocks because they pay out 90% of income to investors.
Rents and property values tend to increase over time, leading to higher cash flow. With the right investment, you can profit when you are ready to sell. Rental income, any profits generated by property-dependent business activity, and appreciation are all sources of profit for real estate owners.
Cash Flow and Tax Breaks
The net income from an investment after mortgage payments and operating expenses is the cash flow. Property investment potential to generate cash flow is one of its key benefits. Paying down your mortgage tends to improve your cash flow over time and build up your equity. The equity you build becomes an asset that is part of your net worth, leveraged to buy more properties and increase wealth.
Costs of owning, operating, and managing a property should be deducted reasonably. You can benefit from decades of deductions helping lower your taxed income, as the cost of buying and improving a property can depreciate over its life (27.5 years for residential properties; 39 years for commercial). Many tax benefits and deductions are available to real estate investors, allowing them to save money at tax time.
Diversify your portfolio
In most cases, there is low or no correlation between property investments and other investment assets, which are its diversification potential. Property investment can provide low portfolio volatility and a higher return per unit of risk.
Increasing the possible return on investment by using various financial tools or borrowed capital is leveraging. Property is a tangible asset that can serve as collateral, making financing easily accessible. For example, a 20% down payment on a mortgage gets you 100% of the house you want to purchase, which is leverage.