BENEFITS OF REAL ESTATE INVESTING
Investing in real estate can be considered a faster and more secure way to acquiring wealth than any other investment method. Sure, there are other ways of acquiring wealth. For instance, you can invest in stocks and mutual funds but how volatile and secure are these investment methods? You can also invest in bonds being that is a safer investment way but you will be stuck with a fixed rate of return that will not appreciate, it cannot be liquidated and the returns are minimal. With real estate, you have a more controlled investment that offers accelerated returns with additional financial advantages. The following are the most common benefits of investing in real estate:
Appreciation
Equity
Cash Flow
Tax Reductions
Financial Leverage
Hedge Against Inflation
Appreciation- Real estate appreciates steadily in property value over time. In South Florida, as the population continues to grow, there is an increase in demand for housing hence the market rates go up. Obviously, in order to see an increase of real estate appreciation, an investor should hold on to their real estate investment for a long period of time.
Equity- Once the mortgage or real estate loan is start to being paid, the payment goes to paying off interest and principal. By making payments towards the principal you are building equity in the property and accumulating wealth. If the property is rented, the tenants will be the ones who are actually paying off the mortgage allowing the property to be paid on its own.
Cash Flow- Is the passive income from real estate rentals. After paying off the mortgage and operating expenses (taxes, utilities, repairs,) what is left is the cash flow or the profit, which is the most favorite option for real estate investors.
Tax Reductions- A powerful benefit of real estate investing is from tax reductions. First, in real estate the cash flow from rentals is not subject to self-employment tax. In Florida, it doesn’t impose on state income tax. Second, depreciation can be used to reduce taxes from long-term assets. Depending on the type of real estate whether is residential, commercial, buildings or land there are different variations of tax incentives. Lastly, if real estate investing can used as a business and formed as a legal entity, there are tax write offs that can be made as business expenses.
Financial Leverage- Its is the opportunity of using other people’s money to finance your real estate investments. By obtaining financing to cover most of the purchase price of a property and paying a down payment, you can acquire several investment properties by leveraging with other people’s money.
Hedge Against Inflation- Inflation is an increase for prices of goods and services throughout time. For real estate investors, this can be good sign because as rents increase due to inflation, more cash flow one can attain from it. As the mortgage of the property will remain the same, what will go up over time are rents, which can be a benefit in the long run as a real estate owner who has its property rented.
