“Buy land they’re not making it anymore” – Mark Twain
Advocates of other asset classes might not agree with this quote but it’s true, and not just because our world has got only 510 million km2 of real estate. The truth is that real estate offers both entrepreneurs and investors a path for low-risk, long-term investment which can benefit them more than stocks, shares or investing in a company based in Silicon Valley.
1. It’s safer, easier, and more stable
When compared to other asset classes, real estate wins because of one thing; real estate industry is far less risky and volatile. It’s more stable, especially for people who invest in rental properties. As a real estate investor, you will continue getting a steady stream of income through rental properties, even in a slow economy. People might switch to more affordable housing but you won’t have to “sell” asap like in shares if things go wrong. Also, it’s far less complicated to invest in real estate compared to stocks, shares, start-up companies or starting your own business. We, as human beings, have been renting our properties to others for rent for centuries. It’s not rocket science.
2. You save money through tax-breaks & depreciation
One of the most important benefits of investing in real estate is the tax-breaks. A lot of governments actually reward property owners. For example, you can write off interest payments, property management fee, maintenance, depreciation and building write-off against the income that property generates in Australia. In Dubai, instead of property taxes, they have a monthly municipality tax. You have to pay 10% of rental income for commercial properties and 5% of rental income for residential properties. Because of these tax-breaks, you will be able to retain more income from your real estate investments compared to other investment options. Depending on which country you are in, you might be able to keep more income generated from rental properties than what you would make from other investment avenues.
3. You make money through appreciation
Steady income from rents and tax-breaks is nice but these are secondary reasons to invest in real estate. The primary reason is appreciation. The value of your asset is going to increase over time. If you bought your rental property using a mortgage, then it’s basically your tenant who would be paying back your loan along with interest to the bank. Over the years, you would have a valuable asset to your name without $0 investment. Then you can keep the asset for the steady stream of income that it provides or sell it for a much higher price than what you bought it for.
4. Demand for houses outstrips supply
Good housing has been in demand for ever and with the world’s population increasing steadily, there will be a gap between the supply and demand of real estate. You can invest in real estate and be on the supply side rather which dictates the price and make profit because of this gap. Besides that, there are always markets which are hot, where people “want” to live because of the location, job opportunities, future development projects, amenities, etc. What it means is that if you invest in the right property, you can make profit even when real estate market is sort of down. Above all, housing has been and will always be part of our life goals.
5. You can negotiate on pricing
When you invest in shares market, you will be buying or selling them according to market price. You can’t negotiate on its price. Investing in real estate is totally opposite to this scenario. You can and should negotiate everything, which basically means better investment opportunities for you. As a savvy buyer, you can purchase properties well below market price if you utilize your negotiation skills, professional network and market knowledge. If you are flipping houses for living, then you can sell that house for a much higher price than market if you play your cards right.
6. You are in 100% control
No one likes giving someone control of their destiny and the primary reason people work in real estate is for freedom, from bosses, from 9-5 jobs, from relying on brokers to handle your trades, and from overall uncertainty of things. You are in charge as a real estate investor. Want to manage your properties yourself? Great, you can do that. Don’t want to? Not a problem, hire professional property manager who can take care of your property for you.
As an investor, you will have more freedom to do things which can improve cash flow.
- Increase in rents
- Decreasing expenses,
- Increase property value through renovations
If you are more of a developer than property manager, then you can subdivide an existing property or a vacant block and build housing units upon it, which you can later sell for a tidy profit.
In real estate, the success of your investments is largely defined by yourself. If you want more money, then you have to hustle.
7. You can benefit from city development plans
The value of property is often determined by where that area is headed in next 5, 10 or 15 years. As a real estate investor, the value of your property might get a boost because of a development plan like building a highway, a new university, a hospital, a shopping mall or a park in the vicinity. These amenities will enable you to sell house for a much higher price than what you bought it for. Basically, you can benefit from spendings of other people as a real estate investor. But to do all this, you need to have information and for that, you can attend city council meetings or follow the project announcements for an area you are interested to invest in.
8. You can invest in a variety of ways
Real estate is an extremely flexible industry in terms of investment options. It offers something to everyone.
Whether you want to invest for short-term gain or are in this for a long-haul, you will find a investment strategy suitable to your financial goals. Here are a few investment strategies used in real estate:
- Home Flipping (Short-term)
- Rental Properties (Long-term)
- Lending (If you have money
- Vacation Rentals (Seasonal)
9. You can get financing relatively easily
Banks love real estate. That is why home loans are a major part of their business model. As an investor, it’s going to be much easier to get financing for residential houses than any other asset class and the reason is it’s tangible.
Also, because real estate holds a special place in the hearts of both lenders and banks, you can borrow more money from them using your house as a leverage. Usually you can get 80 to 90% of home equity as loan but credit score plays a huge in determining how much you would get. Still, this is far more than what lenders would provide you against, say, a share portfolio.
10. You can diversify your portfolio
Diversification is a risk-minimization technique and real estate, because of its low volatility and steady cash flow, can really help investors balance their investment portfolio. Investing in real estate, especially for long-term, is a pretty safe option. Compared to stocks or shares, real estate market doesn’t change overnight. It takes time and usually there are trends / patterns which develop over years that indicate where the market is headed. According to Investment News, the average real estate cycle is 18 years and the next correction shouldn’t be until 2026. The cycle duration is based on analysis of past 200 years of real estate data.
Real estate is no get rich quick scheme. You need patience, commitment and a diverse portfolio to build wealth in real estate but it should be part of any investment portfolio for it’s sheer benefits.