Did you know that the average American home appreciates 3 to 5 percent every single year? So if you own a home for 20 years and then sell it, your home will be worth anywhere from 60 to 100 percent. more.
Talk about an incredible way to make money.
But with so many different types of investments out there, you may feel overwhelmed with all of your options.
That’s why we created this guide outlining the top 6 benefits of investing in real estate. Keep reading to learn more.
1. A Steady Income
Let’s start with the basics. When you own a property and rent it out, this means you can enjoy a steady income month after month.
For example, if you own a home that has a mortgage of $1500 and you can rent it out for $1800, that’s an extra $300 in your bank account every single month.
And who wouldn’t like that extra passive income? Plus, someone else is paying your mortgage on that property.
As you’re deciding on what property to buy, spend some time doing research. What locations near you would be the best for renting?
Where are there lots of young families or other young people who are looking to rent? These areas are often a great place to purchase.
Also think about other areas with lots of renters. Often towns with colleges or universities are a great consideration as well.
2. Extra Tax Benefits
Next, one of the biggest benefits of investing in real estate are the tax incentives.
The federal government rewards property owners in the form of tax breaks as a way to encourage people to purchase property.
Let’s say someone earns $100,000 as a business owner running a retail store and you make $100,000 in a year through rental properties. At the end of the day, you’re going to keep more of that money.
Here are 3 of the best tax benefits:
- Since you’re not a typical small business owner, you don’t have to pay any self-employment taxes
- Depreciation tax benefits are a huge win as a property owner
- You also get a break on your taxes the year that you make your purchase
The best part? There’s no catch. These benefits are available to all property owners.
We’re not talking about giving thanks. We’re talking about a different kind of appreciation, this one being an important financial topic.
As you own your property, it will increase in value over time. This is what naturally happens in our economy.
Think of it this way. Every month, you pay off part of your mortgage, decreasing the size of your loan. And while this decrease is happening, the value of your home increases.
So what does this mean in the long run? You’ll be able to make a lot of money in terms of appreciation, which is one of the best loopholes of real estate.
Let’s say you bought your place for $200,000 and you hold onto it for 11 years. At that point, it’s worth $275,000. That’s $75,000 extra you’ll make from appreciation as well as everything you’ll make in equity.
4. Diversify Your Portfolio
When it comes to investing, it’s always smart to diversify your portfolio. What does this mean exactly?
Think of it in terms of the phrase, “Don’t put all your eggs in one basket.” If you invest all your money into one company’s stock, for example, what happens if they go bankrupt? That would deal you a major blow.
To avoid this potential disaster, it’s a great idea to spread out your investments in various different types. These could include stocks, bonds, and real estate.
Out of the 3 types, real estate is still the safest bet when it comes to investing, so it’s okay if you focus the majority of your money there.
5. Strong Returns
Here’s another important point to consider: real estate offers super competitive returns compared to other investment options.
The truth is that there are countless investment options available, including 401ks, bonds, stocks, and tactical asset allocation.
When compared with one of the most popular, stocks, real estate tends to outperform stocks two to one in terms of returns. It’s a no brainer.
6. Protect against Inflation
To wrap up, there’s one additional benefit we want to address when it comes to investments: it’s great at withstanding inflation.
Most of us have heard of inflation. This is a common financial concept that says that prices tend to increase over time in our market.
The bad news is that other forms of investments, including lots of stocks, are often negatively affected by inflation over time.
Real estate, on the other hand, is really good at withstanding these negative consequences. Shelter is a necessity. There will always be demand for apartments and homes.
Because of this, your real estate investments will continue to increase in worth as time goes on, which is the goal of every type of investment at the end of the day.
The Top Benefits of Investing in Real Estate
There you have it: 6 of the top benefits of investing in real estate. While there are many different forms of investments, real estate is one of the best out there. Now that you’ve read through these tips and tricks, it’s time to consider your specific situation. Does real estate investing make sense at this time in your life? How much do you have saved already?
Answering these questions will help you make the right choice for you and your financial future.
Want to learn more? Check out our blog for more interesting articles like this.