To quote the billionaire Andrew Carnegie, "Ninety percent of all millionaires become so through owning real estate." It can come in the form of a "we buy houses company", large rental properties, or future land developments. It is an investment that has always been, and always will be profitable.
Some argue that investing in real estate is preferable over other forms of investment, but what makes this tangible wealth a favorite among investors? Here are reasons famous investors choose real estate as their long-term investment.
Leverage
Leverage, the use of borrowed capital to increase potential return, is the top advantage of this kind of investing. Mortgages reduce the amount needed to purchase a property outright, and even after calculating the additional costs, the annual return of investment (ROI) makes it worth the wait.
By using leverage to their advantage, investors can increase their net worth with little to no money down. The main goal of leveraging is gaining control of 100% of the desired assets, with only a fraction of the value.
Guaranteed Cash Flow
An investment is secure if one knows what kind of return to expect from it. Ideally, an investor should receive 6% return or more, and while there is less risk involved, it doesn't make it any less lucrative.
Speaking of 6%, the appreciation rates of real estate has been climbing 6% every year since 1968 - except for the 2008 recession, according to the National Association of Realtors. Investing in this field is also beneficial for equity accumulation.
Tax Benefits
Real estate investors are familiar with the ins and outs of tax incentives to owning property. Tax deductions are available for property-related expenses such as upkeep, insurance, utilities, maintenance, improvements, or even mortgage interest. Since repairs are part of property maintenance and do not add value, they can be considered for a tax write-off.
The investors also benefit from long-term capital gains: when they sell a property that they have owned for over a year. Capital gain tax rates are lower compared to short term capital gains, which have no special tax treatment.
Depreciation is a non-cash expense that also works as another considerable tax break. Using depreciation to their advantage involves deducting from the wear and tear of rental properties.
Summary
While real estate investment is what turned some people into millionaires, it is not as complicated as most finances. In comparison to other methods, it is easy to plan for, purchase, and there are not as many financial barriers in the way. Also, the risk vs reward makes preferable expenses compared to other markets.
Not only is it a go-to investment by most investors out there, but it is also an accessible investment that can be done by almost anyone. Depending on what the person already owes, they are investing without realizing it.
