When you decide to invest or engage your hard-earned money, stocks seem like keeping your cash with a very unreliable friend. The stock market requires considerable study mapping to make profits off the charts, but it fluctuates. On the other hand, real estate has an easy market trend that you can learn while investing. Real estate is market-friendly and comparatively less risky, that if done right, can earn your wealth in no time.
Real estate refers to the physical space on the land that you can buy, sell or rent to another individual for a profit or steady income. It may seem like a considerable investment, but real estate provides equally huge profit/returns.
Here are some of the reasons why you should consider investing in real estate:
- Rental yield: People will always be moving around and renting places around developing areas no matter the economy. It ensures that real estate never stops earning you money. Rental yield depends on the location, condition of the rental property, market prices of the rental properties in the surrounding area. Your property’s rental yield is the gap between the annual rent you will obtain and the property’s value. You can get the percent value by multiplying it by hundred, i.e. (annual rent/value of the property)*100.
- Appreciation refers to the increase in the real estate/property market value over some time: Real estate aims at getting positive returns when the owner decides to sell the property in the future. You may either force property appreciation by renovating or repairing it. Or Other factors that influence appreciation like location, developmental plans, or market demand. Being a tangible and limited resource, land and property appreciation is guaranteed. The concept of buy-hold-buy implies that the businessmen buy the property, hold it till the market sways their way and timing is perfect, and sell it for a profit.
- Building of equity for fortune: Over a period, as you pay off your mortgage, you are also building equity through your property. Simply put, equity refers to the profit you will receive after you have paid off the mortgage on your real estate according to the current market trends. With building equity, you are asserting the leverage that will allow you to buy additional properties. Some ways to build equity are making a larger down payment, paying off the mortgage consistently, and/or improving your house. Remember that you will receive the approximated equity amount minus the realtor’s share for the deal when you sell the house.
- Highly tangible asset: Real estate forms the part of physical assets that you can perceive. They fall outside of your financial statement, account balance, and stocks. Investing in real estate has its intrinsic value due to its physical properties that are a limited resource and can only be passed around through transactions. It gives you higher returns at more extensive changes as the market fluctuates but eventually stabilizes in favor of tangible assets. Although they guarantee stable investment, real estate is less liquid. They also diversify your portfolio apart from the stocks and bonds, adding substance to your name and wealth.
- Generation of passive income: Real estate provides the owner with a stable passive income that is un-influenced by the market trends. You don’t have to work for it to continue its income. The real estate is monetized by letting it out for various purposes for which you can charge accordingly. For example, letting the property for a business may allow you to charge more for it, or you may allow it to be rented out to an individual or a family. Not only will it provide a steady cash flow, but you may also initiate renovations, and that will allow you to increment property rent.
- Tax advantages: One of the significant benefits of investing in real estate is the tax benefits accompanying the investment. Not only is your money safe and sound engaged, but you are also exempted from various taxes that are otherwise applicable. You are entitled to the tax deductions on mortgage interest, cash flow from investment properties, operating expenses and costs, property taxes, insurance and depreciation (even if the property gains value), and other benefits. Also, if you are selling a property, buying another one from the equity, you are exempted from the property tax. Another necessary tax exemption is the one against capital gains earned in the profit with lower tax rates. It is easy to maintain all this with property management Perth.
- High leverage refers to capital gains from sources to invest: In other sources to increase future returns. Potential returns depend on the financial investment, nature of the investment, and approximate gains in the future. Instead of investing vast sums of money by borrowing from different sources, the property owners invest by taking out the equity generated by the present estates. It is a bit more complex than other factors. But you will be able to use it to your benefit once you have figured out the investment and returns. You might also want to look into mortgage returns that allow you to put down the mortgage’s down payment and enjoy a more extensive property with assured returns as the property’s value rises with time.
- Diversification of portfolio: If you are a seasoned investor, you know the risk of having a single investment option that you swear by. When the market trend changes, your one investment option may/may not be affected but are you willing to take that risk? You must spread out your funds by investing in different sources that guarantee your safety. Investment properties guard your money as tangible, physical assets with low relation to the major asset classes. Real estate leads to diversification of your portfolio and is a safe tangible asset to mitigate the risk of loss and, therefore, lowers the portfolio volatility.
Real estate generates wealth and stabilizes your economy better than any other mode of investment. You may think that hefty investment will take its own sweet time to hand you a steady flow of cash, but that is not the case. You may generate income as soon as you rent out your property and keep it the same way unless you empty or sell your real estate. So buy, rent, sell!