There are many investment vehicles and real estate is one of them. But it is considered a very safe, reliable and attractive form of investment. You may have heard success stories of investors, landlords, and builders who have made millions from their investments in real estate. There are many reasons why real estate investing is good for you. Here are top 5 financial reasons why you must invest in real estate.
1: It can help you earn passive income
If you invest in a rental income producing property, you can easily meet all expenses like installments to lender, maintenance and repairs, and insurance and property taxes and still earn income every month. This is the beauty of real estate investing where tenants pay off your monthly repayments and give you additional income to enjoy every month. To achieve your objective, you need to maintain positive cash flow from your property.
2: It gives you the power of leverage
There is no other investment method where you can hope to make use of other people’s money, referred to as OPM in real estate. If you invest in stock market, you must buy shares of a company using your money. But n real estate, you can purchase a property by just paying a small amount in the form of down payment. Rest of the money is financed by a lender to make its purchase possible. It is called mortgage where the buyer can repay the remaining amount along with interest in easy monthly installments. This advantage of leverage is not available in any other form of investment.
3: It allows you to build wealth gradually
When you buy a property, your equity in the house is restricted to the amount of money you have paid in the form of down payment only. However, as you start to repay your mortgage in the form of monthly installment, you pay not just a part of the principal but also a little bit of interest. The portion of EMI that goes towards the principal adds to your equity in your property. What is interesting to note is that even this equity is being built by not you but your tenants in the shape of their monthly rentals.
4: It allows you to enjoy tax savings
You have to pay income tax every year on your income. However, you can keep all your income with you without paying any income tax when investing your money in real estate. There are many kinds of deductions allowed to real estate investors that you can learn about by consulting an experienced CPA or real estate tax advisor.
5: Appreciation of your property
This is one benefit of investing in real estate that is available to all investors. Depending upon the location in which you have purchased a property, you can expect a steady increase in its price with every passing year. However, to maximize this appreciation, you must study housing markets and buy properties in good locations only. Many investors have seen the value of their properties doubling in just a few years’ time after buying them.
These are the top 5 reasons why you should invest your money in real estate. These are all financial reasons while there are also many other non-financial benefits that accrue to you as a real estate investor. As a rule of thumb, keep away 10% of your monthly rental income for repairs and another 10% of vacancy. This will allow you to meet expenses on account of these factors while maintaining a positive cash flow from your property.
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