greenieS
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Are you thinking of investing in real estate? Here's what you need to know about real estate benefits and why real estate is a good investment.
Cash flow
Cash flow is the net income from a real estate investment after making mortgage payments and maintenance expenses. A key benefit of investing in real estate is its ability to generate cash flow. In many cases, cash flow only builds up over time as you reduce your mortgage payments - and build up your equity.
Tax deductions
Real estate investors can take advantage of numerous tax cuts and deductions that can save you money at the time of taxation. In general, you can deduct reasonable costs related to owning, operating and managing a property. And because the cost of buying and improving a real estate investment can be depreciated over its useful life (27.5 years for residential properties; 39 years for commercial properties), you benefit from decades of deductions that help you reduce your taxable income.
Appreciation
Real estate investors earn money from rental income, any profit generated by business activity dependent on ownership and appreciation. Real estate values tend to increase over time, and with a good investment, you can make a profit when it's time to sell. Rents also tend to increase over time, which can lead to a higher cash flow.
Build capital and wealth
As you pay off a home mortgage, you create equity - an asset that is part of your net worth. And as you build your equity, you have the tool to buy more properties and increase your cash flow and wealth even more.
Portfolio diversification
Another benefit of investing in real estate is its potential for diversification. Real estate has a low - and in some cases negative - correlation with other major asset classes. This means that adding real estate to a portfolio of diversified assets can reduce portfolio volatility and provide a higher return per unit of risk.
Real estate leverage
Leverage is the use of various financial instruments or borrowed capital (for example, debt) to increase the potential return on an investment. A 20% down payment on a mortgage, for example, gives you 100% of the house you want to buy - this is the leverage. Because real estate is a tangible asset that can be used as collateral, financing is readily available.
Yields adjusted for competitive risk
Real estate returns vary, depending on factors such as location, asset class and management. However, a number that many investors are looking for is to surpass the average yield of the S&P 500 - which is what many people mean when they say "market". The average annual yield over the last 50 years is about 11%.
Inflation coverage
The ability to cover real estate inflation stems from the positive relationship between GDP growth and real estate demand. As savings expand, demand for real estate increases rents. In turn, this translates into higher capital values. Therefore, real estate tends to maintain the purchasing power of capital, shifting some of the inflationary pressure to tenants and incorporating some of the inflationary pressure in the form of capital appreciation.
Cash flow
Cash flow is the net income from a real estate investment after making mortgage payments and maintenance expenses. A key benefit of investing in real estate is its ability to generate cash flow. In many cases, cash flow only builds up over time as you reduce your mortgage payments - and build up your equity.
Tax deductions
Real estate investors can take advantage of numerous tax cuts and deductions that can save you money at the time of taxation. In general, you can deduct reasonable costs related to owning, operating and managing a property. And because the cost of buying and improving a real estate investment can be depreciated over its useful life (27.5 years for residential properties; 39 years for commercial properties), you benefit from decades of deductions that help you reduce your taxable income.
Appreciation
Real estate investors earn money from rental income, any profit generated by business activity dependent on ownership and appreciation. Real estate values tend to increase over time, and with a good investment, you can make a profit when it's time to sell. Rents also tend to increase over time, which can lead to a higher cash flow.
Build capital and wealth
As you pay off a home mortgage, you create equity - an asset that is part of your net worth. And as you build your equity, you have the tool to buy more properties and increase your cash flow and wealth even more.
Portfolio diversification
Another benefit of investing in real estate is its potential for diversification. Real estate has a low - and in some cases negative - correlation with other major asset classes. This means that adding real estate to a portfolio of diversified assets can reduce portfolio volatility and provide a higher return per unit of risk.
Real estate leverage
Leverage is the use of various financial instruments or borrowed capital (for example, debt) to increase the potential return on an investment. A 20% down payment on a mortgage, for example, gives you 100% of the house you want to buy - this is the leverage. Because real estate is a tangible asset that can be used as collateral, financing is readily available.
Yields adjusted for competitive risk
Real estate returns vary, depending on factors such as location, asset class and management. However, a number that many investors are looking for is to surpass the average yield of the S&P 500 - which is what many people mean when they say "market". The average annual yield over the last 50 years is about 11%.
Inflation coverage
The ability to cover real estate inflation stems from the positive relationship between GDP growth and real estate demand. As savings expand, demand for real estate increases rents. In turn, this translates into higher capital values. Therefore, real estate tends to maintain the purchasing power of capital, shifting some of the inflationary pressure to tenants and incorporating some of the inflationary pressure in the form of capital appreciation.
