Global pandemic or not, real estate investing continues to be a vehicle for generating wealth.
Real estate investing has proven to have more advantages over investing in stocks, bonds and other traditional assets. It provides predictable cash flow; appreciates in value, by keeping up with inflation; provides a higher return because of positive leverage; and, offers equity growth through debt reduction.
Here are reasons why investing in real estate is the way to go:
#1. Passive Income
Real estate creates a predictable stream of passive income. Each time your real estate pays you an income, you move a step closer to income replacement. I am assuming here that your goal is to stop working someday and enjoy the fruits of your labour.
With real estate, you just have to build your portfolio, to a point where the income from your properties is enough to completely replace your income – thereby, financial independence. Experts consider financial independence as when you have 25 times your annual income saved. With this amount, you can comfortable withdraw 4% every year, without running out of money.
Learn more: How to Produce Income From Investing Forever
#2. Diversification
If anything can be gathered from 2020, is the importance of income diversification. The largest financial risk for most people as evidenced by the events of 2020 is the loss of a primary source of income.
Therefore, setting up and managing real estate property can open a stream of steady income for you that doesn’t require a full-time commitment. If you continue to expand your income streams, you will eventually achieve total income replace – this is the point of financial freedom; the ultimate financial security we are all striving for.
Learn more: How to Build a Passive Income Strategy
#3. Appreciation
Real estate property prices tend to go up in value. Though every region is different, inflation alone pushes up the cost of most things over time, even real estate. As the economy expands, the demand for real estate rents increases, this translates to higher capital value i.e. appreciation. As a landlord, you maintain the buying power of capital by increasing rent and capital appreciation.
#4. Leverage
Real estate can easily be leveraged, that is you pay for a property without coming up with the full cost. You can do so by taking out a loan to buy a property and only put down a fraction of the total cost or have it financed 100%.
All the income generated from the property, the equity build-up, appreciation of the property and tax write-offs, are just some of the benefits you’ll gain even though the property isn’t 100% yours just yet.
You can leverage in two main ways:
- Bank-issued mortgage loan. Where the buyer takes out a loan to buy the property and secures it against the value of the property.
- Owner financing loan. Where the seller finances directly with the buyer, either in the whole or part.
Leverage is a great tool to get started investing in real estate to amass a fortune. Most other investments simply cannot utilize leverage in this way. There simply aren’t many ways to buy financial investments with leverage outside of using margin accounts – and those are problematic already.
Learn more: Leverage: The Key to Amassing Wealth
#5. Equity
We mentioned building up equity in leveraged real estate ownership. This happens, when you make payments towards your mortgage (in principal reduction) – each payment increased our ownership of the property.
If you’ve invested well, your rental properties should properly pay the mortgage payments; and also generate leftover cash for repairs and maintained.
At the end of the mortgage period, the entire property will be yours and your tenants will have paid the majority of the cost of the property.
A win-win for real estate investing in my books.
#6. Improvable
The most unique feature and biggest advantage of real estate is that you can turn the ugliest duckling into a beautiful swan. Real estate is a tangible asset made of brick, glass, concrete and more. These things can be replaced or refurbished – brining up the value of the property instantly.
In short, you can increase your net worth by simply increasing the value of your real estate through structural or cosmetic improvements.
#7. Tax
Our countries tax code allows for various deductions for the normal expenses incurred in owning a real estates property such as repairs, land rents/rates, insurance and even interest paid on the mortgage. These deductions can offset income and reduce your overall taxes obligation.
Also, if you decide to sell your investment property, later on, the gain in value is subject to capital gains tax. In Kenya, capital gains tax stands at 5% – super low, right?! This low tax rate can help you make bigger strides at amassing wealth over time.
Learn more: Top 5 Ways To Begin Investing In Real Estate
#8. Self-Sustaining
Real estate is a self-sustaining asset that will allow you to retire comfortably. A real estate asset will generate enough cash to maintain itself and continue generating rental income for its owner. For this very reason, real estate is a great investment for retirement unlike stocks, which are self-liquidating assets.
#9. Returns
Real estate is one of the few methods of investing with instant results. Rental properties produce income almost immediately and predictably over time – not n 10 years, but today. You can cash, spend and invest rent payments as soon as you gain control of the property.
Investing with quickly results greater energy and enthusiasm to keep going – while also enforcing positive financial behavior.
In A Nutshell
There are no losses in profits.
Real estate is easy to purchase, easy to finance and there are no insurmountable financial barriers to entry. It has also become easier for investors to improve their properties and to utilize tax advantages.
While investing in stocks is becoming more and more mysterious ( more like an insiders game), real estate investing is looking better and better as we move into this new decade.
Happy Building!
Image credits: Top by Nubia Navarro (nubikini) from Pexels
