Real estate investing is among the most popular and lucrative business opportunities that provide great returns to investors. Real estate investment involves the purchase, ownership, management and renting (selling) of real estate property to generate profits. For many years, real estate investment has proved to be a safe investment that creates wealth at the same time providing financial freedom to investors. Whether you want to save up for college or retirement, to quit your 9-5 job or you aspire to achieve financial freedom, investing in real estate is a good option for you.
All you need to establish yourself in the real estate market is one rental property, to begin with, and you are good to go. However, it is worth noting that you need to carry out proper market analysis and consult professionals in the industry if you want to achieve great returns from real estate investing. In this article, we will look at the top benefits that come with investing in real estate. We will also look at some challenges that you may face.
Top Benefits of Real Estate Investing
1. Steady Cash Flow
Most people invest in real estate because of the steady income they will generate in the form of rent. Rental properties provide stable monthly income that is mostly passive. This allows you to spend most of your time doing other businesses. Depending on your location, you can earn enough income to cater for your expenses and at the same time remain with extra cash to save and invest in more real estate properties. Typically, real estates in urban centers and those near colleges and universities tend to provide higher returns due to the high demand in those areas. This makes the location of the property a very important factor to consider when it comes to real estate investment.
2. A Hedge against Inflation
Another important benefit of the real estate business is the hedge against inflation that it provides to investors. Real estate properties protect investors from both the short and long-term effects of inflation. Inflation comes as a blessing to real estate investors as rental income and property value goes up as the prices of other commodities shoot up. Real estate investors benefit a lot from inflation since the high cost of living that comes with inflation only pushes their cash flow higher.
3. Real Estate Appreciation
Over time, the value of your real estate is bound to go higher and higher. This is because rental rates continue to rise due to the growing demand for these facilities, and the increasing costs of construction. It is worth noting that real estate investing is not a short-term plan. For example, in 5 years’ time, your real estate properties will be worth way more than you paid for them.
4. Tax Benefits
Another major benefit real estate investors enjoy is tax benefits on their rental properties. This is because income from rental properties is not subjected to self-employment tax. The government also provides tax benefits for the property’s depreciation, insurance, legal fees, and other expenses. In addition, real estate investors are entitled to low tax rates because of their long-term investments.
5. You Are Your Own Boss
Real estate investing gives you flexibility. Since you work for yourself, you can fix your schedule at your convenience when running your projects and managing your property. As a flexible investor, you can also do things to improve the value of your property that will, in turn, increase your income. For example; you can renovate your property to attract high-quality tenants. Investing in real estate allows you to have total control over the performance of your business which is an icing on the cake.
6. Mortgage Payments Become Easier to Pay
In situations where you buy your rental property through a mortgage, your tenant bears the burden of paying your mortgage. Tenants should, therefore, be treated well and kept happy to avoid any possibilities of them vacating your property. Since it is the tenant that pays your mortgage (the loan pay down), your rental property becomes a type of savings account which grows monthly without you depositing funds to it. After your mortgage is fully repaid by your tenants, your rental property becomes a valuable asset which you can either decide to lease or sell.
7. There Is Potential of Receiving High Returns
One of the best benefits of real estate investing is the high returns that come with the investment. Depending on where your property is located, real estate investors are able to enjoy between 10-20% returns on their investments. Real estate investors can achieve higher returns with minimal risks compared to other traditional investments such as bonds and stocks.
Challenges You May Face
1. It Is Costly
Real estate investments normally require a great deal of cash to acquire and manage compared to other investments. However, it is more efficient to spread transaction costs by purchasing large real estate properties.
2. Can Be Challenging To Acquire
Just like any other business, investing in real estate requires you to carry out a market analysis to identify the best deals in the market, and the best geographical location for real estate investing. It is advisable to purchase units in a public security or private pool since these types of units are normally backed by diverse portfolios.
Except under special conditions, real estate properties require continuous management which involves the day-to-day operations and long-term plans for the property. This management comes at a price. Should you decide to manage the properties yourself, the process will still consume time and resources.
It is a fact that real estate investing is one of the most lucrative businesses due to the high returns associated with the industry. However, as an investor, you have to evaluate your investment, find the best deals and find ways to finance your investment. Real estate is worth venturing into. It has the potential to give you great returns, and you are also providing community members with housing. But for you to succeed, you have to exercise due diligence.