Real quick...if you haven't read Chapter I of "Why Real Estate?" I'd strongly recommend you go back for some context. You'll see the journey I took to arrive at real estate and why it's best for my long-term goals.
Now that you know I'm 100% ALL IN on real estate, let's talk about the amazing value this investment vehicle provides. Here are 11 great benefits of investing in real estate:
1. Consistent cash flow. This is the primary reason that got me hooked on buy-and-hold real estate. Don't get me wrong, this is by no means guaranteed. You need a lot going your way to achieve this, but with a great property manager (that finds great tenants and is quick on maintenance requests) and a property with sound infrastructure (limiting capital expenses), you'll watch the rent checks roll in every month.
2. Gain more leverage. Real estate is an investment where using the bank's money is a great option (but make sure to run your numbers!). The ability to make a down payment, leverage your capital, and increase your overall return on investment is amazing.
3. Tax-free Growth. Even if you buy a property with the purpose to hold it, long-run appreciation is realistic and you must consider a tax-deferred strategy. As an exit strategy, you can consider a 1031 exchange, charitable trust, or an installment sale to lesson your tax liability.
4. Tax free cash flow. Because of operating expenses, property taxes, insurance, mortgage interest deductions, and depreciation (even if the property gains value) your cash flow could be tax-free.
Don't forget that rental real estate is a business. This means that travel expenses to check on your properties and payments to family members who manage your properties can be deductible as well. Often, an investor will never pay taxes on their cash flow and can wait for capital gains on the sale of the property in the future.
5. Tax write-offs against your other income. Depending on your classification as an Active Investor or Real Estate Professional, an overage of tax deductions can be used against your other income. But, before you dig too far here, please, please, please discuss this with your tax professional before investing. They're the experts.
6. Rental real estate is a forced retirement plan. Americans are terrible savers. But, we're great at consuming (read: The Millionaire Next Door...seriously). I read that most of America doesn't have $1,000 in savings...YIKES! Well, here's your chance to start thinking long-term. Saving for a rental property and acquiring one takes a significant commitment and determination. Jumping In to real estate in the long-run could be the greatest decision you've ever made to build future cash flow and wealth.
7. You have control. In real estate, you choose the investment market, you select the neighborhood, you buy the property, you agree on an acquisition price, you decide on renovation specifics, you pick a property manager, whom selects your tenant. This is your company. You are the CEO. Responsibility is 100% on you and with that, comes complete control.
8. Appreciation. Not always guaranteed, but rental properties normally appreciate in value with inflation. Increased value = reinvestment in higher value properties after you sell. Or, a sale can provide an equity line of credit to use for other investments.
9. Inflation-proof investment. Rents usually increase with inflation, while mortgage payments on the property remain stable if you have a fixed loan. This increases cash flow, without the increased expense for holding the property! When inflation goes up, it can mean more renters (as mortgages become more expensive). More renters = more demand for your rental = ability to increase rents.
10. Paying down loans - Paying down loans frees up more investment resources to increase leverage. You have can use the increased equity in one property to free up funds and invest in others.
11. Property improvement for equity (forced appreciation) - Many investors intentionally purchase properties below market value, because they require renovation. If you're smart, a nice little rehab will increase the value of the property, resulting in an immediate increase in equity.
Now that you've read just a few of the greatest benefits of Real Estate, take a look at my in-depth journal of buying, renovating, and renting my first out-of-state property!