Why is real estate a good investment? Welcome investors and soon to be investors to my real estate blog. This blog is where I share my ideas, thoughts, knowledge and my ways of acquiring real estate properties. I like to think of my self as a long term real estate investor. Building passive income is how I like to play the game. Here are my top reasons why I invest in rental properties for the long run.
Long-term rental properties are an amazing investment if you buy them cheap and with positive cash flow.
On my blog I discuss investing with little money down, financing properties, purchasing rentals and even fixer uppers. I give full details on the rental properties I own including videos, figures on cash flow, purchase prices, financing terms and how I bought my properties here. I also love big goals and spending time planning and improving my life. I am very big on self improvement and self belief. Click here or more on my goals.
I firmly believe that buy and hold is the best way to become independently wealthy. Buying rental properties and building long term cash flow has a lot of benefits. Buy and hold real estate investment has multiple, significant advantages over other investments. These advantages are the reason I invest in real estate.
The 5 Advantages of Buy & Hold Real Estate
1. Creating Long Term Passive Income
Most investments offer either a consistent return (annuities) or the potential for equity appreciation (stocks). Real estate offers both. Good buy and hold investments offer positive cash flow from tenants that pay rent. The rent paid by the tenets covers the mortgage payment but also provide you with passive monthly income.
Cash Flow. This is the best in my opinion. An investment is just not an investment without cash coming back into my pocket each month. Cash flow from assets such as rental properties is a great way to achieve financial freedom. These are the resources I use to get the most passive income – My Resources
2. Tax Benefits Depreciation
Flipping real estate is a great business and a great way to acquire cash, but one of the biggest disadvantages is that the government aka uncle sam always gets theirs. Not so with buy and hold properties. This is a major advantage of buying real estate for the long run.
Why is real estate a good investment when it come to taxes? The IRS allows you to write off the value of any property over 27.5 years. This depreciation counts as negative income, but it’s only negative on paper since keeping the property in great shape can be paid out of the rent income you get from the tenant living in the property.
So, for example: let’s say you purchase a rental property for $ 90,000 and the land it sits on is valued at $11,000. Assuming your closing costs are $1,000, here’s what would happen:
$90,000 (purchase price)
+ $1,000 (closing costs)
$91,000 (total acquisition cost)
– $11,000 (subtract lot value)
$69,000 (amount to be depreciated)
= $2,509 per year!
In this example, one rental house purchased for $90,000 would yield an annual tax write-off (depreciation expense) of $2,509. If you had 10 rental properties like this one, you’d be able to write off 10x this amount, or $25,090. Now, imagine if you had 20 of these properties, 50, or 100! You could actually get to a point where your depreciation expense exceeds your income and you actually could report that YOU LOST MONEY! This is why professional landlords and seasoned buy-and-hold investors don’t pay taxes.
3. Equity Build Up
Why is real estate a good investment? Real estate is by far the easiest investment to leverage.
With a mortgage, unfortunately, comes the obligation to pay it back over time of course. Fortunately, the cash flow mentioned above allows an investor to pay back that mortgage without spending any of their own money. Instead, the tenant pays for it. This is a huge benefit. The tenant pays the mortgage for you and is you have a standard loan every month the mortgage is paid and you build a little more equity.
The tenant in the case dose all the work for you and you walk away with equity.
Equity can be used to purchase additional rental properties, this is a major benefit that I take full advantage of.
4. Rental Property Appreciation
Real estate, like any other asset, can go up or down in value same as a stock or any other investment. How to calculate house appreciation – Click Here For Tutorial
Many have been scared off by the crash in the early 2000’s and when it peaked in 2007. But if you look at the long term history of real estate prices the trend is consistently moving up. In fact, over the past 40 years, real estate has gone up an average of 4.62% per year. The combination of accelerating equity pay down (with each payment, you pay more principle and less interest), and appreciation means that the investor’s equity in any given property will grow exponentially the longer they hold it. This is where the buy and hold investors benefit. We never count on appreciation, but it’s pretty nice when it occurs. And it usually does.
5. Great Way To Leverage
Why is real estate a good investment? If you invest $20,000 into the stock market, and it goes up 10 percent, you’ve made $2000. If you invest that same money into real estate, you can buy a $100,000 property with an $80,000 loan. Let’s say it only goes up 5 percent. Well, you’ve made $5000. Or in other words, you’ve made a 25 percent return!
So the fact the stock market has a higher return on average is immaterial since your returns with real estate are based on a much higher amount than your principal investment.
One might think this makes real estate more risky than stocks, but that isn’t so either since, as Zack Finance points out, “Stock prices are typically more volatile than real estate prices.” Indeed, a buy and hold investor who invests right can even make it through major downturns like the recent crisis (which saw stocks drop as much as real estate, by the way) with the positive cash flow from the property. Today, housing prices have even returned to pre-recession levels in many markets.
In the long run, real estate and stocks both go up. So if you can survive the downturns with positive cash flow, you’ll be just fine in the long term.
Motivated sellers or unrealized value-add opportunities create a wealth of potential bargains for real estate investors that stock market investors could only dream of. The fact that real estate isn’t as liquid as a stock is usually seen as a disadvantage to real estate, but because that makes the real estate market inefficient, it’s actually an advantage.
So for example, if a real estate investor buys a property for $100,000 that’s worth $120,000 with $20,000 down and an $80,000 loan, they have already made a 100 percent return. Furthermore, this significantly reduces their risk. After all, if you have a 20 percent equity cushion, the market could fall 20 percent — and you wouldn’t have lost a penny.
Conclusion – Why is real estate a good investment?
Why is real estate a good investment? Holding real estate is the best way to build passive income that you can retire early on. Getting rich with real estate is the way to go. By finding good deals and buying them for the long run, investors can create residual income, while also growing their equity exponentially through principle pay down, appreciation and leverage.
Fun Fact – 7% of the worlds 2000 plus billionaires baked their cakes in real estate – and none of them were flippers. I just read Ken Fishers’ (another billionaire) book, the Ten Roads to Riches and in it, he absolutely poo poos flipping.
In other words, it’s the best investment around. Do you agree? What’s your investing strategy of choice? Have any counterpoints to offer? Why is real estate a good investment from your point of view?
Please — don’t forget to leave a comment below!
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