Why Invest in Real Estate?

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Real estate is the common person's path to financial freedom. If you buy in a good location, real estate can provide a reliable income stream you, and your children, will not out live. Below are some of the reasons why so many people are successful in real estate.

Predictable

The stock market and similar investments are volatile; values can change in seconds. This volatility is caused by how quickly stocks and similar instruments can be bought or sold. Real estate is the opposite. It takes about 30 days to buy a property and maybe much longer to sell a property. What this means to you:

• Prices change slowly over time, so you have time to plan before taking action.
• Market trends are reasonably predictable. You can determine a given location's market direction and act accordingly.

Forgiving

As long as you invest in a location where prices and rents increase faster than the inflation rate, all but the worst mistakes will be corrected over time through rent increases and appreciation. However, if you invest in a location where prices and rents increase below the inflation rate, the initial return will be the highest the property will ever generate because inflation is constantly eroding the buying power of money.

Inflation Protection

Rents and prices have historically tracked with inflation, while your costs are largely fixed. So, as rents rise, your return increases. To a large degree, inflation is advantageous to real estate investors, provided you invest in a location where price and rents increase faster than inflation.

Income Reliability

Buying a car or taking a vacation is optional. Having a place to live is not. Because housing is a requirement, your income is highly reliable. Plus, this is an income stream you will not outlive. Your children and their children will receive income from your investments.

Appreciation

Buy the right property in the right location, and the property's value will increase over time. There is no tax consequence for appreciation until you sell the property.

Leverage

Real estate is the only investment where you can get 30 year fixed rate financing. Plus, you can deduct loan interest paid. And, when the mortgage is paid off, your cash flow increases significantly.

Tax Advantages

Investment real estate provides significant tax advantages over stocks or other similar investments. For example, not only can you can deduct business expenses, you also depreciate the property over time. In many cases, tax advantages enable you to have a taxable loss while enjoying an signifiant car flow.

Wealth Transfer Through Generations

When someone inherits investment real estate, the IRS resets the asset's cost basis to its value at the inheritance date, and depreciation is wiped out. Even if the heir sells the property immediately, they pay capital gains based on the stepped-up value, not the original value. Also, depreciation starts over on a stepped-up basis.

Compound Growth

If you purchase in a good location, appreciation will increase the value of your property over time. You can take advantage of the equity by refinancing the property and use the cash to purchase another property. Refinancing is not a taxable event. Using this technique, you can acquire more investment properties without significant additional cash out.

Limited Time Required

As a busy professional, you do not have the time to learn real estate investing and manage all the details. If you buy through a good investment team, you will have minimal time investment in the purchase or ongoing operation. If you do not work through a good investment team, your time and effort will be significant and make real estate investing less desirable.

Make Money From your Future Retirement Home

You can buy your future retirement home today and rent it out until you are ready. This not only provides additional income and tax savings until you are ready to retire, but you also lock in your future retirement home at today's prices.

Summary

There are many benefits that investment real estate provides. My favorite characteristic of real estate is that it always has value, even under the worst economic conditions. While I've lost hundreds of thousands of dollars in the stock market, I have never lost money with real estate.