Did you know that around 63 percent of people in the United States of America own real estate in some form or another? Investing in real estate is a great idea for a number of reasons, but it is important that you learn how to invest in real estate the right way. Many people wonder “Why should I invest in real estate?”
There are numerous benefits of investing in real estate that range from a diverse investment portfolio to owning a tangible asset. Taking advantage of the real estate investment benefits is one of the most effective ways of growing your wealth and creating a ton of monthly passive income.
How Are Americans Building Generational Wealth in the Northeast (SWNS)
By HomeLight Homes
The good news is that you’ve discovered the perfect place to learn all about the benefits of a real estate investment for your personal finances and wealth. Keep reading this article to learn about the twelve best benefits of investing your capital into real estate in 2022!
1. Monthly Income
Odds are that you’ll need to work with a lender to cover part of the purchase price for your real estate, but that doesn’t mean that you can’t make a monthly income. You need to view your real estate investment as something similar to a stock that produces dividends for your wealth.
This is especially true if you purchase a turnkey property. You can open a turnkey property up for renters immediately and find a local property manager to help you out with finding and screening tenants. Taking this approach takes the majority of the hard work off of your shoulders so that you can enjoy the financial benefits of your real estate investment.
You can also look into getting a multi-family unit and purchasing it with a first-time homeowners loan while living in one of the units. You can collect rent from the other units on the property and put that money towards paying off your mortgage or saving for a new property.
2. Increased Equity
Home prices have continued on a steady incline ever since the mid-1960s and it doesn’t look to slow down any time soon. One of the benefits of investing in real estate is building up your equity through the appreciation of your assets.
The average home’s price has risen almost 100 percent since the year 2000 in the United States. If you purchased a real estate property in the United States in the year 2000 then you’d almost double your wealth due to appreciation and equity in your property.
Imagine if you had five different real estate properties in your portfolio and each of them was worth around $200,000 in the year 2000. You now have close to $2 million in equity thanks to the appreciation that is occurring with your properties.
3. You Can Use Leverage to Boost Returns
The majority of property investors like to use a ratio of a 25 percent down payment and 75 percent financing when they make the choice to learn how to invest in real estate. Taking this approach is an effective way to boost your cash flows to continue investing in other properties or other areas of your life.
When you have extra capital to play with, you put yourself in a position to use your money to invest in other properties or other assets. Your portfolio will become much more diverse, which puts you in a better position to grow and protect your wealth.
It is possible that when you’re learning why should I invest in real estate you’ll hear the phrase “other peoples’ money.” If you can find a way to grow your real estate portfolio by using other peoples’ money then you should do that. It is a proven way to boost your return on investment with your real estate properties without limiting your cash flows.
4. Complete Control
Many people like investing in the stock market because there are tons of different options and there are numerous ways to research companies and stocks. A big drawback of taking that approach is that your money is going into the hands of the company. You have zero control over what happens with your money once it leaves your account and goes to the company that you’ve invested in.
The way that the company uses that money might not be in your best interest and might not help you grow your wealth. Some people struggle with that thought because they don’t like not having control over their money.
One of the benefits of investing in real estate is that you gain complete control over your investments and your money. You get to decide what you invest your money in, when you want to invest it, and how you invest it.
5. Protection Against Market Volatility
Real estate will always have value, which means that it is a great way to protect your wealth and hedge against volatility in the market. There isn’t a massive correlation between the value of the real estate and the value of the stock market during times when there is a bear market.
You’ll put yourself in a good place when it comes to your wealth if you can invest in real estate to add to your investment portfolio. The lower the correlation is between assets and the stock market, the better they perform if the economy takes a hit or starts to tank.
It is considered one of the best ways to protect your wealth against inflation and changes in the market. You should also look into investing in precious metals for additional protection and diversification for your investment portfolio.
6. Inflation Hedge
Another of the benefits of a real estate investment is the way that it helps to protect you from inflation. The inflation rate when it comes to the rest of the market is around 38 percent, while the inflation rate with homes during that time is 98 percent.
You’ll not only benefit from an increase in value for your real estate properties, but you’ll also bring in more money each month with rent. You can’t go wrong with learning how to invest in real estate if you’re looking for ways to gain and maintain wealth in the United States of America.
7. Deducting Business Expenses
One of the biggest perks of running a successful real estate investment business is learning about the different expenses that you get to deduct. The costs associated with owning real estate are all deductible, which saves you a ton of money on your taxes each year.
You can deduct leasing and management fees as well as the costs of repairs and maintenance during the year. You’re also allowed to deduct any property taxes that you pay for your real estate properties. The same goes for mortgage interest that you pay on these properties over the course of the year.
Your real estate investment is great because you can use the rent from your tenants to cover all of those expenses, which leaves you with a nice chunk of net income when all is said and done.
8. Tax Benefits
In addition to the numerous tax deductions that you get to make when you start reaping the real estate investment benefits are many other tax benefits like depreciation. The IRS helps real estate developers in a few different ways, and the most important is the non-cash depreciation deduction that you get to claim.
Over a time period of 27.5 years, you’ll get the ability to deduct 3.636 percent of the combined value of your properties from your taxes. You’ll put a nice chunk of change back in your pocket by taking advantage of these tax benefits. You can then turn around and invest the money that you deduct towards adding an additional property to your portfolio.
9. Section 1031 Exchange
The Section 1031 Exchange is another feather in the cap of a good real estate investor. It comes with real estate investment benefits because the laws in the United States are very favorable for real estate investors. You’ll get to use depreciation as a way to lower your taxable income each year thanks to the laws in the United States.
You also get to deduct any operating expenses for your business over the course of the year. Not many other professions get favorable tax laws that work in their favor like someone that is an expert in real estate investment.
Using the Section 1031 exchange is a great idea for your wealth when it comes to real estate investment because it allows you to defer paying your capital gains taxes to the IRS. This exchange allows you to take one investment property within your portfolio and exchange it with a different property.
Taking this approach leaves you with additional money to invest in other properties. Make sure you capitalize on the benefits of a real estate investment like the Section 1031 exchange.
10. Self-Directed IRA
Everyone looks forward to reaching the day when they have the means to retire and start enjoying the finer things in life. One of the best ways to do that is to set money aside for your retirement in a way that allows it to continue growing.
Many people that invest in real estate choose to put their money into a self-directed IRA for their retirement savings. Self-directed IRAs have a number of benefits that mesh well with the typical real estate investor.
Your self-directed IRA allows you to use your savings to invest in additional real estate properties while also granting you the many tax benefits that come with traditional 401(k) and IRA retirement plans. You get to have your cake and eat it too when it comes to real estate investment.
11. Invest Where You Want, When You Want
There are a lot of things that go into learning how to invest in real estate, and one of those things is learning the way that numbers work. The more offers that you make to people selling homes or rental properties, the more likely you are to find someone that will accept your financial offer.
Still, you need to take time and energy to analyze the right properties for growing your wealth. You might get a great deal on a property when it comes to cost, but it could be in an area where people no longer want to live due to crime or other issues.
You need to take time to set up a real estate investment strategy that you can use all over your area and the world for finding the best properties. You’re throwing things at the wall to see what sticks if you don’t have an end-goal or end-game with your real estate investment strategy. The nice thing is that you can wait for the perfect opportunity.
12. Be Your Own Boss
Many people set out with the dream of becoming their own boss and running a company. One of the best benefits of investing in real estate is the chance to be your own boss and set your own hours. There are low barriers to entry when it comes to starting a business as a real estate investor.
You don’t need to spend money on a storefront, paying salaried employees, providing them benefits, or keeping inventory for your business. All you’ll need is a decent amount of saved money and the drive to make your real estate investments work.
You’ll also gain the bonus of helping the local economy in your area when you choose to start a real estate investment business in your area. Once you’re up and running you’ll develop relationships with local contractors that you can hire to help you with repairs or property improvements.
Hiring these contractors puts more money into your community while also boosting the value of your property.
Start Enjoying the Benefits of Investing in Real Estate Today
There are a number of notable benefits of investing in real estate that you can start capitalizing on today if you’re willing to do the research and learn how to invest in real estate. You’ll get a ton of great tax deductions from your taxes each year, and it is a great way to protect your wealth from inflation.
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