8 Major Reasons Why You Should Invest In Real Estate Starting Today
Investing in real estate isn’t just for the rich and famous. Anyone can do it, even if you only have a small down payment. With the right preparation and research, anyone can enjoy the profits real estate offers.
Who Should Invest In Real Estate?
You don’t have to be a specific type of person or have a particular financial status to invest in real estate. If you desire to grow your portfolio, diversify your investments, and enjoy cash flow and capital gains, you should invest in real estate.
So who should invest in it?
Investors Looking to Diversify
If you’re already invested in the stock market or other risky assets but want to diversify, branching out into real estate is a great solution. If you invest some money in stocks and additional money in real estate, you’ll lessen the blow if one industry tanks. If you have all your money in the stock market, for example, and it crashes like we’ve seen occur multiple times, you could lose everything. But if you have money diversified in real estate, you may not lose everything and could even offset the loss of capital gains.
Anyone Looking to Start Investing
If you haven’t invented it yet, real estate is a great place to start. You can even ‘house hack,’ buy a multi-unit property, live in one unit, and rent out the rest. This allows anyone, even beginners, to start investing in real estate.
Investors Looking for Cash Flow
Most investments don’t provide cash flow. You invest your money and leave it, not accessing it until you sell the asset, such as stocks. If you invest in buy and hold real estate, you earn cash flow monthly when you have tenants paying rent. The difference between the amount collected and your expenses is your cash flow. You can use it to cover your monthly bills, save for the future, or even create a more extensive real estate portfolio.
8 Reasons to Invest In Real Estate
Now let's look at the top 8 reasons to invest in real estate to help you decide if it’s right for you.
1. It’s a Tangible Asset
When you invest in intangible assets, like stocks or bonds, all you have to show for your investment is a piece of paper. You don’t have ownership of anything. If the stock market crashes, your piece of paper could be worth next to nothing.
If you invest in real estate, you have a tangible asset. Values may increase and decrease throughout the years - there’s no guarantee they will not fall, but tangible assets are worth something. You still have a piece of property to sell should you need to get out of the investment.
Since it’s a tangible asset, it takes a little longer to sell it since you need to work out a deal with a buyer and go through all the legalities. Still, in the end, you’ll walk away with your initial investment and hopefully a capital gain if all goes according to plan.
2. Real Estate Values Usually Appreciate
If you invest in a home for long enough, chances are it will appreciate. While things happen, like the housing crisis of 2008, they aren’t common. Most of the time, buildings and land appreciates, making your investment worth more than you paid for it.
You can also force appreciation by renovating or improving the property. Whether you buy an undervalued property and fix it up to sell, or you renovate a rental property, you can increase the home’s value faster than natural appreciation occurs, giving you an even greater return on your investment.
3. You Can Leverage Your Equity
As you pay your mortgage balance down and/or renovate the property to increase its value, you can leverage the equity to further your investments. The equity in your property is the difference between your home’s value and the amount you owe on your mortgage. Any difference is your profit.
If you keep the home, you can’t use all of the equity, but you may be able to take out up to 80% of the home’s value, using what’s left to invest in more real estate. This is a great way to increase your portfolio without waiting until you have enough money saved for a 20% - 30% down payment for another home.
4. Real Estate Provides Cash Flow
If you invest in a buy-and-hold property, you can rent it out and earn monthly cash flow. Most investments don’t provide cash flow. At the very least, they may provide dividends, but you only receive them quarterly or sometimes annually.
Depending on how you manage your property, real estate can be a passive investment. If you work with a platform like Roofstock Marketplace to buy your investment property, they can match you up with a property management company. This is important if you invest in long-distance real estate. This means you don’t have to do much work and yet enjoy the monthly passive income and the capital gains when you sell the property.
5. You May Be Eligible for Tax Deductions
When you own investment real estate that you live in, you get very few deductions. Most homeowners don’t itemize their deductions, so they can’t take advantage of real estate savings. Even if you itemize, you can only deduct your property taxes and mortgage interest in most cases.
When you buy and hold real estate, renting it out, you own a business rather than just an investment. The IRS allows you to take many deductions just like you would if you owned a brick-and-mortar store.
Any expenses you incur to maintain the property, handle business, or even conduct business (buying a laptop, traveling to the property, etc.) can be written off on your taxes. This reduces your tax liability and increases your profits.
6. It’s a Great Retirement Savings Plan
When you invest in real estate, it’s not liquid. You invest in it for the long term. As time passes, you earn more equity in the home. When you’re in retirement or near it, you can sell the property and use the profits to get you through retirement.
Many call it a forced retirement plan. You aren’t putting money away in a 401K or IRA, but you pay the mortgage every month. If you rent the property out, your rent should cover the rent and other expenses incurred, which means you invest in your retirement without contributing money each month.
Talk with your tax advisor before you sell the property, though, so you can minimize your tax liabilities when you sell the home. Since it’s not a principal residence, you don’t get the capital gains exclusions, but there are other ways to reduce your tax liability.
7. You Have Many Options
There’s more than one way to invest in real estate. Many people buy and hold real estate, as it provides a nice monthly cash flow and can help you save for future goals. If you use a platform like Roofstock Marketplace, they provide you with all the information you need to choose a property, including the financial information.
If you are a fixer-upper type person, you may enjoy fixing and flipping. This involves finding undervalued properties, rehabbing them, and selling them. This usually happens within six months, so you don’t have a lot of carrying costs. You can then turn around and buy another property, doing it as many times as you want until you reach your earnings goal.
8. You Don’t Need a Lot of Money to Invest In Real Estate
Many people assume they need a ton of money to buy investment real estate. You don’t. When you find the right property with the help of a platform like Roofstock Marketplace, you’ll have an easy time getting financing if you have decent credit and have your debts under control.
When you can get traditional financing, you need only 20% - 30% of the sales price to put down on the home. This means you can leverage your investment - investing in an asset worth much more than you invested. If the property value increases, you earn an even larger return on your investment.
How to Invest In Real Estate
There are many ways to invest in real estate. The right method is the one that you are most comfortable with, and that provides the information you need to make a solid investment choice.
Work With a Real Estate Agent
Most people work with a real estate agent to buy a house. While this works great for primary residences, not all real estate agents, work with investors. If you go this route, interview several agents to determine who offers the service you need.
Real estate agents have access to the MLS listings to help you find the properties for sale. Still, when you’re investing, you need the property to be affordable, in a highly sought-after area for renters, and in an area that generally appreciates.
If you find a real estate agent who understands your needs as an investor, you can use them to help you find a home.
Use a Real Estate Platform
If you’d rather look for homes yourself but want support, the Roofstock Marketplace platform is a great option. Roofstock sells homes by investors to investors. Many of the homes listed already have tenants in them. When you buy the property, you buy it with the tenants and active lease, making you a landlord on day one.
Not only does Roofstock have a great selection of properties for sale for investment purposes, but they do all the legwork for you. They provide all information about the property, including cash on cash return, net operating income, cap rate, and gross yield. This helps you make a financially sound investment decision, given your situation and goals.
Work With a Real Estate Wholesaler,
A real estate wholesaler is a middle-man. The wholesaler finds properties for sale, typically undervalued properties, and puts them under contract. The wholesaler then transfers the contract to you at a slightly higher price. The price difference is the wholesaler’s fee for finding the property and doing the legwork.
This works great for fix and flip properties, or if you don’t mind buying a property and fixing it up before you rent it out. Before you buy a property, make sure you understand its financials and the demand for rentals in the area to ensure you’re making a good investment.
DIY
You can also buy investment properties yourself. You don’t have to use any professionals to support you, although it’s recommended. If you like the thrill of finding properties, bidding on them, and crunching the numbers to see if it works, you aren’t required to use anyone to support you until you get to the closing process. We recommend using an attorney, appraiser, and inspector to ensure you’re making a good investment.
Roofstock Marketplace is a good compromise between hiring a real estate agent and doing it yourself if this seems too overwhelming. It costs buyers only 0.5% of the sales price if they buy a property, and Roofstock does all the legwork for you while allowing you to view the properties and decide for yourself what’s right.
See also: Get Started in Real Estate Investing
The Bottom Line
If you haven’t invested in real estate, now is a great time. There are plenty of opportunities for investors to buy a property and help the community by providing rentals. As the world picks up the pieces from the pandemic, millions of people are turning to rentals either because they couldn’t afford their mortgage any longer or they’ve picked up and moved to a new state for a fresh start.
If you have the money for a downpayment and the credentials to secure a mortgage, you can leverage your investment and enjoy the profits real estate offers.
Image by ErikaWittlieb from Pixabay
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