There are a thousand and one things that you can invest in that promise profits, so much that if you Google search what to invest in you may get confused. Many ventures promise impressive amounts of profits and some do deliver, but if you’re looking to invest in something real that offers returns through proven facts and not just a hope of favorable market conditions, then owning property is the way to go.
The real estate market offers benefits over other asset classes like stocks or forex in ways that they just cannot match, giving any serious investor numerous reasons to invest in property. Here are five of ours:
Protection From Inflation
The value of currency depreciates every year, hence, the higher the prices of things. And this inflation affects a lot of asset classes except real estate and some others. Assets and securities are constantly in a race to beat the inflation rate and real estate does so almost every time. More accurately, revenue from real estate beats inflation about 71 percent of the time.
Real estate offers real value because it’s prices and revenue change with inflation. When prices go up, so does the rent and the prices of homes. If you own a rental, your revenue increases according to inflation.
Tax Benefits
Real estate offers tax benefits that are frankly too enticing to investors. Tax laws in most, if not all parts of the US favor property owners. Some of the benefits include:
Deductions: The law allows tax deductions for expenses that are associated with maintenance, upkeep, and repairs to a property. These expenses include mortgage interest, property tax, maintenance, cost of repairs, and advertising. These benefits only apply for commercial properties i.e. property being used to generate profit as a business.
Capital gains tax: Profits gained from the sale of commercial property is only subject to capital tax which is much lower than income tax. Taxes for short term capital gains i.e. less than and equal to one year range from 10 to 37 percent, while that of long-term capital gain, above a year, ranges from 0 to 20 percent.
Depreciation: Real estate tax laws recognize that a property will lose part of its value over time due to wear and tear. This is called depreciation. You can deduct the depreciation of commercial property from the taxes you have to pay. The amount deducted depends on the property value, its useful life, and the method used to calculate depreciation.
1031 Exchange: This allows investors to swap one real estate property for another without paying any taxes until they later sell the property.
Passive Cash-Flow
Passive cash-flow is revenue earned without active involvement. In the real estate market, passive income is earned from renting or leasing property. This is in addition to the numerous tax-breaks offered. A property owner could rent and earn revenue monthly while deducting depreciation and other expenses covered by tax benefits.
Relative Stability
The real estate market is one that does not rise and fall erratically. Every market has its up-and-down moments, but it’s not nearly as volatile as markets like the stocks whose prices could crash due to speculation. In the absence of market crashes and other unnatural occurrences, real-estate prices steadily increase.
Financing Opportunities
Real estate loans are easier to obtain than other types of loans. You also don’t have to pay the entire value of a property up-front before being able to gain profits from it. For example, you could purchase a property worth $100,000 but only need to put down 20 percent of that i.e. $20,000. Your bank or lender will provide the rest of the funds, but all profits from that property i.e. when you rent goes to you. In essence, you can start earning profits from a property without paying its total value yourself.
