We all want a sense of financial security in our lives. While looking for investment opportunities that will align with your interests, real estate may have crossed your mind.
There are copious financial benefits that you can experience by purchasing properties.
Whether your goal is short-term cash flow, or long-term equity, owning real estate can help you reach both of those things.
These types of investments are attractive to many investors versus things like stocks and cryptocurrencies because you are more in control. You can purchase a property and add value through renovations, which you have control over.
Then, once you go to sell the house, you can make large profits. Current Real Estate capital gains tax laws make ownership even more favorable. Real estate investing has been around for many years, and will continue to be a profitable place for investors.
Today, we discuss 5 major financial benefits of owning real estate.
Long-term Financial Security
Numerous benefits accrue from investing in real estate. Arguably the most sought after is long-term financial security. Once you own the property, it is yours.
Of course, if you used a loan to purchase it, then the bank has an interest in the property until you fully pay them back. However, making the initial purchase can be the most challenging part. This is where new investors get ‘analysis paralysis’ and do not pull the trigger.
Appreciation is a large part of what contributes to long-term financial security. Most major cities throughout the United States have experienced appreciations over the past few decades where the real estate values have increased.
Even if you only put 5% down to purchase your home, and you only pay the minimum amount of your mortgage each month, appreciation can still make you wealthy over time.
That is the true power of real estate. You can purchase an asset, and watch its value naturally increase over time without you having to do much aside from maintaining it.
Of course, if you decide to renovate the property, you will be adding value that way as well. When it comes time to sell you will reap the benefits.
By adding that to your real estate investing strategy, you will likely experience financial security faster than simply waiting for appreciation to hit.
Monthly Cash Flow
Real estate can also be a great reoccurring source of monthly income. This can greatly increase your short-term financial status. However, this strategy requires more local knowledge and tact to pull off successfully.
One major factor to consider is the location of the property. Do your research about the average rent amounts and demand for available units by renters in the market.
Depending on how extensive your portfolio is, you can hire a property management company to help manage your houses. When calculating the potential rental income of a property, factor in the cost of a management company if you foresee yourself using one in the future.
Typically, a property management company charges 6-10% of the monthly rent, with additional sign-up fees and tenant onboarding fees that come along with their services.
Tax Benefits
There are countless tax benefits you can experience as a property owner. Especially if you are investing in real estate as a full-time job, you can typically deduct expenses like property management fees, mortgage interest, property insurance, and property taxes.
Consult with a CPA that specializes in working with real estate investors to minimize your expenses and take advantage of the most tax benefits that are available to you.
Regardless if you are in real estate part-time or full-time, there’s usually an opportunity to save money through certain tax strategies. This goes for both owners of land and owners of buildings.
Entrepreneurial Lifestyle
Being an entrepreneur means that you are always in the driver’s seat. There is no boss or manager telling you what to do. You must have the drive and determination to get things done yourself and for yourself.
While this seems like a huge benefit to many current W2 workers, it can be challenging to remain consistent.
Running your own real estate investing company allows your income to be uncapped. This is very different from your average 9-5 job that produces the exact same salary each year.
Entrepreneurs have had great success buying properties and expanding their companies to make both short and long-term wealth. When you are running your own business, you can take it as far as you want.
Decreased Housing Expense
The term “house hacking” has become extremely popular in the real estate investing world over the past decade. A house hack involves a person buying a house and renting out the other rooms, or units, within the building to generate income.
They can then use that income to cover some or all of the monthly expenses for the property, including the mortgage, taxes, insurance, and utilities.
A “perfect house hack” is when someone can cover the entirety of expenses with the income generated from the rents while still having some money left over to pocket as profit. This is easier to achieve if the property is larger.
For example, if you live in a single-family home with only 2 bedrooms and you plan to rent the other bedroom out, it’s unlikely that the rental income from that single bedroom will cover all of the expenses.
If you own a triplex, you can live in one unit and rent out the other two units. Typically, this should generate substantially more rental income, giving you the opportunity to cover all of your expenses and also make some money.
By purchasing real estate, you can decrease your monthly housing expenses. Using rental income to cover your expenses, as well as the remaining property expenses, can put you on a fast track to financial freedom.
Conclusion
There are endless opportunities in the real estate world. First, you must set your goals. Determine if you want to focus more on the short-term, or play long ball. Or maybe somewhere in between.
Regardless of your financial vision for the future, real estate investing is a vehicle that can completely change your life and get you to where you want to be. Flex those creative muscles and don’t be afraid to jump into the real estate world.
About the author: The above article on the financial benefits of owning real estate was written by Alex Capozzolo. Alex is the Brotherly Love Real Estate blog owner and a content writer for the real estate industry.
His focus is on helping people through one of the most important investment decisions of their lifetime by seamlessly providing fast, honest, and professional real estate services.