The first step for becoming a successful real estate investor is assessing your financial situation and seeing if you qualify for a loan. Once you qualify for a loan, you can start looking for properties to purchase. There are many different reasons why you want to become a real estate investor—from becoming financially free to earning a living passively. Here are the top reasons to start investing in real estate.
High Asset Value
A tangible asset is a physical thing, such as a house, apartment building, or even a couch, that’s worth money. Real estate is considered a tangible asset that will always have value. You won’t have to worry about the market crashing compared to investing in stocks. Instead, your asset is always worth something even if house prices suddenly drop.
Real estate appreciates over time, which means it grows in value. Not only that, but the land will also be worth more as time passes. Sometimes, land can even be more valuable than a house or other building. Land can even increase in value even if it doesn’t have a house on top of it.
Many savvy investors purchase land and wait to see what will happen. Over time, people will want to build on the land, which means they’ll buy it from you for a higher price than you paid.
Opportunity to Maximize Value
Real estate investing allows you to maximize the value, which means making it more expensive than it was when you bought it. For example, after you purchase a home, you can add value by adding a pool or updating the kitchen. Then, you can sell the home for more than you paid within just a couple of months or start renting it out as soon as our renovations are done.
Any improvements you make to real estate will increase its value. However, some changes will give you the biggest returns, such as kitchen remodels and adding decks.
Real estate investments build equity, and that equity increases over the years. As you pay off the mortgage loan, you’ll build more equity on the property, and as the value of the property appreciates, the house will become worth more.
Not only that, but you can take out an equity loan that can be set up as a line of credit or traditional loan. These loans can be used to pay for anything from buying more property or paying off your mortgage.
Real estate investing typically offers better returns than other forms of investments, including the stock market. Real estate appreciates every year at a higher rate than the stock market, which means you can get a better return faster.
Real estate will allow you to diversify your portfolio and protect it from any downturns in other markets to lower your risk if you have other investments. Diversification prevents you from losing everything if the market where you’re most invested in takes a turn. In addition, real estate investments allow you to store your money in a place that’s safer than other types of investments.
Predictable Cash Flow
Many investments, including the stock market, don’t allow you to predict your cash flow. However, real estate allows you to make accurate predictions, especially if you already have a tenant. As long as the rental property is occupied, you can continue to count on the money from rent every single month. However, you should budget a portion of your earnings for maintenance, repairs, and other things that may impact your bottom line, such as marketing when the unit is empty.
Passive Income Source
Real estate investments allow you to receive a passive income because you can predict your cash flow. This makes it easy to maximize your earnings and cut costs. A passive income can be paired with your regular income, allowing you to earn more without putting in another eight hours of work every day. By appropriately setting your rent price and raising it yearly to cover inflation, you can expect a monthly source of income no matter what happens during your regular day job.
Inflation will impact every investment you make, but real estate is always in demand, allowing inflation hedging. Regular inflation makes it expensive for companies to run optimally, making them raise their prices or accept lower earnings. However, real estate doesn’t have the same strong correlation that stocks do. Not only that, but you can pass inflation costs to your tenants by making them pay a little bit more in rent each year.
Real estate offers tax benefits that you can get through other forms of investing. For example, you can deduct your mortgage interest, state, and local taxes if you own your home. For investments, you can deduct your operating costs and costs associated with taxes, maintenance, and payroll.
Additionally, the taxes you pay when you sell the property, also known as capital gains, are usually lower than your tax bracket from a regular nine to five job.
At the same time, you can use the money you earn from selling one property to purchase another and defer your capital gains. You won’t be taxed on the money you earned because you're-invested it into another property.
Once your real estate investment has a tenant, or you sell it, you can start seeing results. While you might not be able to purchase a home and resell it the next day without putting any time and money into it, the results from real estate investments are quicker than other types of investments.
Investing in Real Estate
Becoming a real estate investor doesn’t take as much money as other types of investments; all you need is to be able to qualify for a mortgage loan. Not only that, but you have tons of options. From apartment complexes to single-family homes and land, you can purchase any type of real estate and watch its appreciation increase so you can earn a passive income.