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Someone asked me this question: “Why real estate?” I could have chosen to invest in insurance or even cryptocurrency. Keep reading to find out the top 5 reasons you should invest in real estate. These have worked for me and, for sure, they would work for you too.
There’s a phrase that goes, “Cash flow is king.” Imagine getting a check in the mail every month that you didn’t necessarily do anything for. We call this in the real estate world mailbox money, and it’s an investment.
The first time I learned about the concept of cash flow, I was convinced that this was the path I wanted to take. Having a passive income has always been a goal for me.
I’m all for generational wealth, and having a passive income allows you to “pass” it down to your children and their children as well.
If you’re working a 9-5 job or doing entrepreneurial work with mailbox money coming in, you’re not thinking about it as much.
Most of the time, it’s saved for emergencies or a rainy day. There’s a sense of security and satisfaction that comes with knowing that you have a backup plan when things get tough.
For example, you own a rental at $100,000. Your mortgage is $750 after including capital expenditures such as taxes and homeowners insurance.
Say you rent it out at $1100, which means you’re bringing home $350 after you’ve paid all your expenses. Who wouldn’t want that?
This example demonstrates how cash flow can boost your income. You could use it to cater to your needs or stash it away in a savings account.
2. Tangible Investment
Real estate is tangible. You can see it, feel it, and even inspect it. Let’s use the stock market as a comparison. If you’re trying to get information on a particular company, you can’t directly ask them to show you their books.
The real estate industry is a contrast to the stock market. You can ask a real estate agent to show you whatever records you’d like. You can even ask to inspect a house or any property you might be interested in — the street and neighborhood included.
You can even improve the features, say get some new countertops, a new vanity, or whatever improvement allows you to gain more money. You can also get insights into a property.
Maybe there’s a legal situation that might present some challenges in the future, such as a pending divorce, tax issues, or even a mortgage or foreclosure situation. You get an opportunity to assess that and offer a solution.
I call it a solution because nobody wants to be in situations like these. Like I said, with real estate, you can see it and feel it, which makes it worth investing in.
With leverage comes appreciation, which is the icing on the cake. You want to make sure that your property is in a suitable area and the value is appreciating. You can use that money to invest in other units.
Leverage allows you to increase your returns by providing the means to invest in a property without using a lot of your cash. A real estate investor can buy a house at a cost higher than their budget or distribute that cash across several units.
There are multiple sources of finance you can apply for when trying to leverage a real estate investment. These lenders include:
- Credit bureaus
- Shylocks and money lenders
The lender assesses the property’s value plus the expected returns and how much you can source before approving your request. Then, they’ll choose how much of the purchasing cost they would want to contribute and how much you will have to provide as well.
These factors also determine how much interest you will have to pay. So let’s say you bought a property for $100,000. Three years from now, it will probably be worth $140,000 after you’ve done an internal evaluation.
An internal evaluation is a form of appraisal but more minor in size, which means you have $40,000 in equity. You can then leverage this money to buy another property.
4. Tax Advantages
You’re able to deduct your mortgage insurance and any expenses you might have incurred when either driving to the property or carrying out any repairs. It’s beneficial when working a W2 where you’re paying a lot in taxes.
Other expenses you can deduct from tax advantages include:
- Mortgage interest
- Home and property insurance
- Management fees
Tax advantages come in handy because you’re able to offset those expenses using your rental properties. These deductions decrease the taxes taken from your income, thus saving you money once you finally file your tax returns. For it to work, you’ll need to keep accurate records of all your tax information just in case the Internal Revenue Service (IRS) decides to carry out an audit.
5. The Need for Real Estate
There will always be a need for real estate, as almost every type of business requires a physical location of sorts. Look at Amazon. They’re currently building their headquarters. A business will always need real estate. It could be in the form of brokerages, schools, apartment complexes, etc. Even internet-based businesses and E-commerce stores require a location to work from.
Besides, real estate is also a significant driving factor to the economy. Think about how many employment opportunities that it can provide:
- Interior design
Real estate’s economic potential is almost immeasurable. It also has attractive perks such as tax breaks and a steady cash flow. Moreover, real estate appreciates over time.
You find that a property you bought at $200,000 could be worth as high as $250,000 to $300,000 in about ten years. When you invest in a prime price of a property and then develop it, you increase its value, resulting in profit when you eventually decide to sell.
These are some of the reasons that will motivate your hand at real estate. It’s a great industry with plenty of advantages and room for growth and improvement. If you have any questions or would like to talk more about real estate investment, please get in touch with me at Casanova Brooks on my socials.
Remember, in the dream, we trust, but you have to take action!
These are some of the reasons that will motivate your hand at real estate. It’s a great industry with plenty of advantages and room for growth and improvement.
If you have any questions or would like to talk more about real estate investment, please get in touch with me at Casanova Brooks on my socials.
Remember, in the dream, we trust, but you have to take action!