Real estate is a solid investment that can increase in value over time, according to Russell Sage, a prominent American financier, businessman, and politician in the 19th century. Unlike other investments, real estate is an asset that you can touch and see. It's a tangible investment that can provide long-term financial security. Here’s a few reasons why real estate is such a great investment:
A well-diversified real estate portfolio can reduce the risk of total loss. If you invest all your capital in stocks and the market crashes, your entire portfolio is at risk. However, with real estate, if the housing market crashes, only a few properties may be affected because real estate is local. Additionally, you can invest in a variety of real estate opportunities, including rentals, flips, and real estate investment trusts (REITs).
Real estate properties typically appreciate over time, increasing profits for investors, especially those with long-term investments. This appreciation can be converted into cash flow by leveraging profits through mortgage financing or selling the property for a profit. For example, purchasing a property for $150,000 and selling it for $250,000 could yield $100,000 in capital gains, excluding taxes and closing costs.
Investors can deduct expenses from their real estate investments if they can demonstrate actual participation. As a result, real estate investors can enjoy various tax benefits, including tax breaks and deductions, particularly when they manage their real estate investments as a business.
One of the major advantages of real estate investing is its potential for passive income. This income can be used to expand your real estate portfolio, cover monthly expenses, or save for other financial objectives.
Investing in real estate requires initial capital to purchase a property. Your first investment may involve significant leverage through mortgage financing. However, as the property appreciates and you build equity, you can accumulate capital. This enables you to expand your real estate portfolio by investing more capital. You can access this capital by selling the property and reinvesting the proceeds in another property, or by using a cash-out refinance to access some of the home's equity. This strategy provides you with additional capital to grow your real estate portfolio and generate more income.
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