The BIG question on many people’s minds Is “Why should I invest in real estate? Is it even a good time to invest, especially now in volatile times?”
The answer is YES! Mortgage rates are lower than they have been in years, and loans are easier to get now. People are loving real estate investments again! Also, prices are coming down due to the economy being uncertain right now. So now is the time to buy. In fact, almost one-third of Americans are saying real estate is the best investment for money they don’t need for 10+ years. But, does this love for investing really equate to a good investment?
Here are many reasons why real estate does, indeed, make a great investment strategy for your investment portfolio.
Real Estate has Valuable Competitive Returns
Real Estate does give a high rate of returns, as well as the stock market, but does so without as much volatility as the stock market. This was true even during the housing crisis years, believe it or not! For instance, U.S. commercial real estate gained an average of 8.4 percent per year from 2000 to 2010. Stocks, on the other hand, had an average of 3.6 percent in gains that fluctuated from years – 37% loss to years with 28.7% gain. So, not only does real estate have competitive returns, it does so without all the volatility of the market. Now that is a PLUS!
Real Estate Property Value Appreciates
Over time, Real Estate values grow. Unlike automobiles that lose money the moment you drive them off the lot, the longer you hold onto property, the more money you will make! The Federal Housing Finance Agency (FHFA) House Price Index shows that homes have been appreciating steadily at 3 to 5 percent per year as a national average, with some areas being significantly higher.
Some financial experts even believe your net worth statement shouldn’t include anything that depreciates, like your car. The only way to really increase your net worth is to reduce your debt and increase your appreciating assets. This means real estate, with its track record of appreciation, is a perfect way to increase your net worth.
Real Estate has Tax Write Offs and Deduction Advantages
Real estate offers tax benefits other traditional assets, like stocks and bonds, do not offer. Many traditional investment vehicles cost you money in taxes. Done correctly, real estate investing can actually give you some tax cuts and benefits. Some tax benefits can include:
- Deductions for interest paid on mortgages
- Deductions for property taxes
- Deductions for repairs and maintenance on investment properties
- Deductions for insurance, travel and agent fees for investment properties
*The specific tax benefits you will enjoy may differ from other investors, so be sure to consult your tax accountant for specific advice.
High Tangible Asset Value
It’s easy to know the value of a property, and far easier than understanding the true value of a stock or bond. Additionally, a stock value can go to zero, but that rarely happens with real estate. Why? Real estate always has the value of the land and the value of the structure. Even in times of a natural disaster, if you are insured, you will never end up with property that has no value.
Diversification Leads to Increases in Your Portfolio
Have you ever heard the advice, DIVERSIFY, DIVERSIFY, DIVERSIFY? If you’ve ever spoken to any financial adviser about investing, then you’ve likely heard that piece of advice. When you diversify your portfolio, you spread out the risk. In other words, if some of your investments are down, others will be up. Real estate is a great way to add diversification to your portfolio.
One reason to choose real estate is that it has a low correlation with the stock market. In other words, when stocks are down, real estate tends to remain steady or go up. This diversification will help you limit your losses.
Adding investment real estate to your portfolio will help offset the volatility of other high-risk assets, thereby reducing the overall risk level of your portfolio, and providing you with steadier returns.
Hedge Against Inflation
Inflation is one of the biggest threats to any cash-based investment. If inflation continues to rise, the value of the American dollar will continue to drop. So, if you have cash investments such as a savings account, CDs, or IRA, the money in them won’t be worth as much in the future as it is now with inflation. Investing in real estate actually protects you from this problem because property values do not depend on the value of the dollar. In fact, the value found in homes, land, and multi-family dwellings actually goes up if inflation goes up.
Rental Home Investment is Hot Right Now
Interestingly enough, millennials prefer to rent a house instead of renting an apartment. They are looking for larger spaces, bigger yards, and more storage – all of which are sorely lacking in most apartment communities. This is great news for those investing in real estate properties because this makes finding quality tenants for your property much easier. Whenever you have a commodity that is hot and unique, you know the investment is great!
Provides Increases in Cash Flow & Dependable Income
A fundamental benefit of real estate investing is its potential to generate income, especially over the long-term as your mortgage is paid down. The income generated from your investment property will often be sufficient to offset your mortgage payment, taxes, condominium fees and other expenses, while still providing you with increased monthly cash flow.
Your cash flow will be strengthened over time as you pay down your mortgage and funds can then be used to supplement your retirement income.
Real Estate Investment is a Wealth Creation
Real Estate Investments strategically can be, over a period of time, a very powerful vehicle for WEALTH CREATION. The value of your investment property increases, while the corresponding mortgage financing is reduced nominally through regular mortgage payments. The result is increased equity and increased wealth.
The equation is quite simple:
Mortgage Financing Reduction + Property Value Appreciation = Long Term Wealth Creation
PROFESSIONAL REAL ESTATE in SEQUIM, WASHINGTON would love to answer your questions and give you Real Estate Advice. Call: (360) 683-3564