Real estate provides a secure financial investment with low risk involved with this asset. Other investments such as stocks are associated with a large amount of risk and can lead to a significant loss. Real estate markets are not as volatile as others, so people gain a sense of security from having their money in properties. Real estate is a long-term investment that allows investors to wait out the dips in the market. This type of investment is especially effective for people looking to increase their retirement income. If a retired person has invested in the property they live in, they will not have the expense of a mortgage. If a retired person has invested in a rental property, the income from the property can be used to supplement their other investments.
Regular Cash Flow
Investing in real estate can provide the opportunity for a regular stream of income for the investor. If a person purchases an investment property, that home can be rented out to tenants. The rent paid by those tenants can be used to cover the expenses associated with the property along with creating additional income. The idea of being a landlord may seem overwhelming, but there are many people and companies that can assist with renting a home. Property management companies will help with everything from finding tenants to conducting inspections. This service allows property owners to earn income from their property without having to deal with all of the headaches of being a landlord. Whether or not an investor utilizes a property management company, investment properties can provide regular cash flow for the investor.
Real estate investment properties can have many tax advantages for the investor. When an investor rents a property to a tenant, he/she is considered a business owner. As a business owner, the investor can write-off the expenses associated with the business. These expenses for a real estate investment property include interest paid on the mortgage, maintenance expenses, depreciation, HOA dues, and homeowners insurance. This is a major advantage compared to other investments such as stocks and bonds. With stocks and bonds, the investor can only write off capital losses. Investors should always consult with a tax professional to make sure they write off any expenses.
With most investments, the investor has no control over how that investment will grow or decline. Real estate allows investors to force their investment to appreciate. Improvements and renovations made to an investment property will force the value of the home to increase. While investors will not receive all of their money back from a renovation, they will relieve a significant portion of it. If proper changes are made to certain rooms, investors could expect to receive up to 90% of their renovation investment in appreciation of the property. This forced appreciation is in addition to the 3-5% that real estate tends to appreciate each year. Whether an investor chooses to invest in renovations or not, they can expect to earn a steady rate of appreciation on their investment.