If there were just a single rule of investing successfully, it would be "begin as young as you can." Real estate is one of the best investment options if only you can take the time to learn about the process and the most effective strategies to get returns.
One of the top benefits of investing in real estate is that you get started even with minimal capital. There are many ways to fund your investments. These include conventional loans, veteran affairs VA funding (and fees), FHA loans, 203(K) plan, adjustable-rate mortgage, and more. Consult with a financial and real estate investment expert to decide the most viable funding option.
So, what makes real estate a smart investment option?
1. Positive cash flow
Cash flow is simply the amount of money that your property makes monthly after you have paid all the relevant expenses. One of the positive aspects of cash flow is that it can increase over time without eating away at the initial amount you invested (principal). It's like a stock where the dividends are high to a point where you no longer have to worry about the stock increasing in value to get better returns.
One of the main reasons real estate cash flow grows is that rent increases as the rate of inflation increases. Remember, your mortgage rates don't change. Eventually, you will repay your loan successfully and enjoy a significant increase in your cash flow.
2. You can use leverage to multiply your asset's value
One benefit of investing in commercial properties is that you can place debt on your assets. The amount of this debt can be several times the initial equity of the property. This way, you will have more resources to acquire more assets with less money. Indeed, your asset value will multiply and increase equity value as you continue paying your loan.
3. Leverage low-cost debt to multiply your cash flow
The ability to place 'positive leverage' on your assets allows you to increase positive cash flow from operations is one amazing aspect of real estate investments. This is possible through borrowing money at somewhat less cost and getting a higher amount than what your property pays out.
For instance, if your asset is generating a 6% cash-on-cash return and has borrowed cash placed on it at 4%, you would be paid 6% on equity fraction and about 2% on the borrowed cash. That means you can leverage low-cost debt to ensure reliable cash flow.
4. Hedge on inflation
For every dollar created, there's a corresponding liability. Purchasing property and other real estate investment options have historically shown a higher level of correlation to inflation compared to 10-year treasury notes, corporate bonds, and other assets.
Nations around the world continue to print money in a bid to spur economic growth. Therefore, it is essential to consider the benefits of acquiring income-producing real estate as a hedge against the ever-increasing inflation. As the rate of inflation increases, the price of real estate is likely to increase. This is true for assets with multi-tenant assets with a high ratio of labor and replacement expenses.
4. The investor can capitalize on your physical assets
Revenue-producing real estate is among the few investment options that, as physical assets, have significant value. Just think about it; the property's land has some kind of value, just like the property itself. Besides, the income it produces has value to people who will invest in the future. Always remember that revenue-producing real estate investments don't have green and red days like the stock markets.
5. Maximize on tax benefits
Real estate investors can maximize tax benefits in different ways. For instance, they enjoy unlimited mortgage interest deductions as well as depreciation accelerations that can potentially shield a portion of the desired cash flow generated and probably paid out to the investor.
If you ever choose to sell your real estate, the IRS allows you to exchange into a like-kind instrument and successfully defer all taxable revenue into the future. That means you no longer need to pay taxes if you intend to resale the property in a few months. Be sure to consult with an expert to handle this process successfully.
Wrap up
Other benefits associated with real estate investments include asset value appreciation, the pride or social class of owning a commercial property, and more. You now know what makes real estate such an outstanding investment option. It's time to consult with an expert to get started or drive your real estate business growth.
