There’s been a lot of talk over the years about the benefits of real estate investing, but what are the real reasons to make this a part of your financial plan right now? Here, we’re going to break it down in simple terms and explain why buying property is one of the best ways to make money that is available to investors right now.
“The great thing about real estate is that even in a bad economy, it will usually fare better than stocks; land, after all, is a finite resource”, wrote Entrepreneur magazine. “What’s more, real estate will continue to appreciate despite occasional slowdowns in the economy. In fact, it’s proven to be the best way to create wealth, and an investor need not be a genius or a millionaire to succeed".
Here are five excellent reasons to invest in income producing property, such as a turnkey vacation home or other type of rental.
1. Positive Cash Flow
There’s no doubt about it, producing a regular income stream – aka, “positive cash flow” – is one of the biggest benefits to real estate investing. Here’s how it works: The leases / rentals from your income producing property secure the asset, which provides a much greater influx of profit that standard stock dividend yields.
2. Hedge on Inflation
This is a big one! Inflation, defined as, “a general increase in prices and fall in the purchasing value of money,” is one of the biggest wealth inhibitors over the long term that investors face. In other words, for every dollar that is created by the Federal Reserve, there is a corresponding liability attached. Fortunately, real estate investment has historically shown the biggest connection to inflation, compared to the S&P 500, Treasury Notes, bonds, etc.
“When inflation occurs, the price of real estate – particularly multi-tenant assets that have a high ration of labor and replacement costs – will also rise”, wrote Entrepreneur. “It is important to recognize the benefits of owning income producing property as a hedge against inflation".
3. Physical Assets = Security
Income producing property is one of the few types of investments that actually has meaningful value and is a “hard asset,” since the property’s land has value for future buyers, along with the structure itself and the income it produces. Another way to put it? Income producing investment properties don’t tend to have red days and green days, as the stock market is prone to do.
4. Tax Benefits
Property owners are able to benefit from real estate investing in a variety of ways under the U.S. tax code, including unlimited mortgage interest deductions, depreciation accelerations and buying real estate with an IRA account, which is an excellent option for investing in an income producing turnkey vacation home. Also, keep in mind that when a vacation home is owned in an IRA account, all income (growth) is tax-deferred, which ultimately maximizes the investment property’s total return on investment.
As more inflation has made its way into the economy and reduced purchasing power over the last several decades, asset value appreciation has given a huge boost to real estate investing. Here’ how it works: Over the same period of time that inflation is doing damage to purchasing power, income producing investment properties have provided incredible appreciation that meets and usually exceeds other investment types, only with much less risk. This is due to a historic increase in property values as net operating incomes rise through rental increases and more efficient management practices.
Have you ever considered buying investment properties as a way to increase your portfolio’s overall return on investment? Let us know why (or why not) in the comments!
Read Getting Smart With: Real Estate Investing Instead of Stocks to learn more about what makes buying property such a savvy financial move!