Saving for the future. That’s what we always want and do. Earning out of that savings is another thing. Others opt to set up businesses but most advice, if not all the time, if you have the means, why not invest in real estate. While most things depreciate overtime, real estate properties, in general, appreciate.
Investing in real estate is not always fancy, or so it seem, but it is one of the best ways to accumulate wealth in the long run, especially for the business-minded.
Brandon Turner in his article gave light to the reason why investing in real estate property is a good move.
1. Cash flow.
Many people invest in rental properties simply because of the cash flow – the extra money that is left after all the bills have been paid. The cash flow can provide ongoing, monthly income that is mostly passive, allowing you to spend your time building a business, traveling or reinvesting in more real estate.
Cash flow from real estate is stable and far more predictable than most other businesses. That’s great for entrepreneurs enduring the ups and downs of start-up life. The cash flow can help float you though the bad times and live well during the good times.
2. Tax benefits.
Not only is the cash flow received from your rentals not subject to self-employment tax, the government offers tax benefits including depreciation and significantly lower tax-rates for long-term profits.
3. The loan pay down.
When you buy a rental property using a mortgage, your tenant is actually the one paying the mortgage payment, thus increasing your net worth each month. Because of the loan pay down a rental property is essentially a savings account that grows automatically, without you depositing money each month.
Today you might owe $200,000 on a rental property, but next year you might only owe $195,000 because the tenant is making the payment for you, making you $5,000 richer. Thirty years down the road, or whatever the term of your loan, it’s paid down to $0. You own a significant asset that you can sell or continue renting, all thanks to your tenant paying the mortgage.
4. Appreciation.
Over time, values do climb higher and higher. That’s why I’m not in this real estate game just for a year or even a decade. I’m in this for life. I know my properties will continue to climb so that 30 years from now, everything will be worth far more than I’m paying for it today.
5. A hedge against inflation.
When the price of a gallon of milk hits ten bucks a gallon, guess what else is going to shoot through the roof? Everything, including rents and property values! The one thing that won’t increase, however, is my fixed-rate mortgage payment. As inflation pushes the cost of living higher and higher, my cash flow will only increase. This is why real estate is often called “a hedge against inflation.” When inflation hits – I’m ready!
6. Control.
This is why I choose to invest most of my income in real estate, knowing that I am the one who is responsible for my success or failure.
- If I want a better deal, I need to hustle to find it.
- If the rental market gets more competitive, I can compensate by increasing my advertising.
- If values drop, I can choose to wait it out or improve the property to drive the value back up.
Full details here.
So, you have now the idea why investing in real estate is a very bold, yet wise move in thinking of savings for the future. But real estate covers a wide range of property types– it could be an apartment blocks to highrises, or residential to commercial type of properties. Joshua Kennon in his article for The Balance, talked about types of real estate properties. For him, the need to know the type is a must in order to properly work on the best type of business approach.
- Residential real estate investments are properties such as houses, apartment buildings, townhouses, and vacation houses where a person or family pays you to live in the property. The length of their stay is based upon the rental agreement, or the agreement they sign with you, known as the lease agreement. Most residential leases are on a twelve-month basis in the United States.
- Commercial real estate investments consist mostly of things like office buildings and skyscrapers. If you were to take some of your savings and construct a small building with individual offices, you could lease them out to companies and small business owners, who would pay you rent to use the property. It isn’t unusual for commercial real estate to involve multi-year leases. This can lead to greater stability in cash flow, and even protect the owner when rental rates decline, but if the market heats up and rental rates increase substantially over a short period of time, it may not be possible to participate as the office building is locked into the old agreements.
- Industrial real estate investments can consist of everything from industrial warehouses leased to firms as distribution centers over long-term agreements to storage units, car washes and other special purposes real estate that generates sales from customers who temporarily use the facility. Industrial real estate investments often have significant fee and service revenue streams, such as adding coin-operated vacuum cleaners at a car wash, to increase the return on investment for the owner.
- Retail real estate investments consist of shopping malls, strip malls, and other retail storefronts. In some cases, the landlord also receives a percentage of sales generated by the tenant store in addition to a base rent to incentivize them to keep the property in top-notch condition.
- Mixed-use real estate investments are those that combine any of the above categories into a single project. I know of an investor in California who took several million dollars in savings and found a mid-size town in the Midwest. He approached a bank for financing and built a mixed-use three-story office building surrounded by retail shops. The bank, which lent him the money, took out a lease on the ground floor, generating significant rental income for the owner. The the other floors were leased to a health insurance company and other businesses. The surrounding shops were quickly leased by a Panera Bread, a membership gym, a quick service restaurant, an upscale retail shop, a virtual golf range, and a hair salon. Mixed-use real estate investments are popular for those with significant assets because they have a degree of built-in diversification, which is important for controlling risk. Full list here.
Whatever type of real estate property you may planning to invest in, one thing is generally guaranteed, that it will appreciate overtime and last for a lifetime, if not, more. While most real estate properties are famous for being big in size, a simple house owner could actually start his own real estate business– and that is through tenancy. All journey begins with the first step and nothing could be safer than to start small. Dependable Homebuyers have been helping houseowners sell their house for the reason of having a capital to buy another property and start a real estate business.