15 reasons why real estate is the best investment

Real estate has long been regarded as one of the best investments for building long-term wealth. While the stock market provides great returns, real estate offers stability along with many tax advantages not found in other asset classes. Below are 15 compelling reasons why real estate can be an excellent addition to your investment portfolio.

Real Estate Builds Long-Term Wealth

Owning rental properties over several decades allows your money to work hard for you through factors like appreciation and leverage.

Appreciation

While past performance doesn’t guarantee future results, historically real estate values ​​have steadily increased over long periods. As properties become more scarce, appreciation lets your rental gain equity and grow your net worth.

Leverage

Banks are willing to lend 70-80% of a property’s value to qualified buyers, letting you keep and control a larger asset base working for you. This gives real estate investors who don’t have millions in cash better access to high-value properties.

Cash Flow

The rental income produced by tenants allows you to pay expenses like interest, taxes, insurance, and maintenance while keeping anything left over. This builds equity with someone else paying down the mortgage.

Tax Advantages

Owning investment property provides many tax deductions not available to other investments like stocks and bonds.

Depreciation

You can deduct a portion of your rental property’s value from your taxable income each year to account for wear and tear, even while it may be appreciating in actual value.

1031 Exchanges

When selling a property for a gain, you can defer capital gains taxes by exchanging it for another like-kind property under Section 1031 rules. This helps you build wealth faster.

Mortgage Interest Deductions

Unlike a primary residence where mortgage interest deductions are capped, rental properties offer unlimited deductions against taxable income for interest paid.

Tangibility

With real estate, you can see and touch the asset that’s building your wealth. This gives investors more confidence and control over their investments.

Physical Asset

Houses and apartment buildings have real tangible value that investors can physically inspect and control, unlike stocks which just represent fractional ownership.

Control

Real estate allows investors significant control over their investments. As the property owner, you decide who to rent to, what renovations or repairs to make, and when to sell. This level of control is not available in other asset classes like stocks and bonds
Additionally, control refers to the power to influence or direct people’s behavior or course of events. In the context of real estate investing, having control over your rental property gives you the ability to make decisions that impact its performance, value appreciation, and cash flow

Some examples of the control you have as a real estate investor include:

  • Selecting tenants
  • Setting rental rates
  • Overseeing maintenance and repairs
  • Improving or renovating the property
  • Deciding when to sell the property

This control allows real estate investors to directly impact their investment outcomes. It contrasts with relatively passive investments like stocks where external factors largely determine performance. The element of control often gives real estate investors more confidence in their ability to build long-term wealth

Pride of Ownership

Owning a tangible piece of real estate often gives investors a sense of pride and satisfaction that investing in intangible assets like stocks and bonds does not typically provide. Whether it’s your first rental property or your fiftieth, being able to drive by a physical building that you own invokes feelings of accomplishment.

Population Growth

Appreciation in property values is largely driven by supply and demand. Mounting population growth leads to more demand for limited housing supply.

Limited Supply

Land is scarce, especially in desirable locations. Local zoning regulations also limit the ability to build new residential development leading to restricted housing inventory. This scarcity places continual upward pressure on prices.

Increasing Demand

The U.S. population has grown by over 22% since 1990. As more people look for places to live in finite geographies, bidding wars break out driving up values . Major metro areas on the coasts have experienced the strongest appreciation.

Forced Appreciation

Restrictive building codes make it difficult for supply to catch up with demand. When market forces outpace new construction, values feel consistent upward pressure.

Inflation Hedge

As a hard asset, real estate tends to keep pace with and often outperforms inflation over time.

Hard Asset

The tangible nature of property acts as a store of value during times of inflation or economic uncertainty, retaining its relative worth . This contrasts with dollar-denominated assets which lose purchasing power.

Rents Increase with Inflation

As the costs of materials, labor, and capital rise with inflation, landlords will charge tenants more. This protects cash flows against inflation erosion over long holding periods.

Financing

Attractive financing options are available to real estate investors that make owning property very accessible.

Low Interest Rates

Historically low mortgage rates make payments affordable and allow investors’ dollars to go further when financing a property . This stimulates demand and facilitates larger real estate purchases.

Variety of Loan Options

Banks offer 15 to 30-year fixed-rate loans as well as adjustable-rate, interest-only and cash-out refinance products catering to investors. More options make real estate more attractive.

Pay Down with Tenants

Rental revenue pays for much or all of your mortgage principal and interest payments. This frees up your capital to acquire additional properties sooner.

Market Cycles

While real estate experiences periodic booms and busts, these cycles tend to average out over decades for patient investors.

Ups and Downs Average Out

The cyclical nature of real estate allows investors to generate profits during hot markets, and acquire new inventory at low prices when conditions eventually cool off .

Chance to Buy Low

Market corrections provide opportunities for value investors to purchase properties below replacement cost that almost guarantee strong returns over an investment horizon of 10+ years .

Conclusion

As shown above, real estate delivers stable long-term appreciation and ongoing cash flow not found in the volatility of stocks. Leverage allows savvy investors to control expensive properties while tenants pay down mortgages. Plus tax incentives enable investors to keep more rental income. With inflation on the rise, tangible real estate offers a hard asset store of value. While occasional fluctuations occur, real estate continues its steady climb over decades. For all these reasons, real estate remains a top choice for building lasting wealth and passive income.

FAQs

What are the main benefits of investing in real estate?

The main benefits of investing in real estate are building equity through appreciation, leveraging bank financing to control bigger assets, generating cash flow from tenant rents, and taking advantage of major tax deductions .

What factor most impacts appreciation?

The greatest driver of home price appreciation is the strong demand created by the increasing population against very restricted housing inventory in desirable locations .

How does being a landlord work?

Being a landlord entails purchasing rental properties, renovating them if needed, finding tenants, collecting monthly rents, maintaining the properties, paying mortgages and expenses, and eventually selling for a profit .

Is real estate a good hedge against inflation?

Yes, real estate is considered one of the best hedges against inflation thanks to its tangible value, ability to raise rents over time, and steady history of appreciation exceeding inflation .

What happens in a real estate market correction?

In a real estate market correction, after years of unsustainable price increases, buyer demand suddenly slows, inventory starts piling up, and prices drop to more affordable levels until the cycle starts again

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