Last Updated on May 10, 2023
For a long time, the real estate sector has been a booming niche. There are numerous prospects for savvy, forward-thinking investors and developers. Investment properties such as land, residential, commercial, retail, industrial, and mixed-use developments, publicly listed Real estate investment trusts (REITs), real estate related company stocks, and mutual funds are all examples of real estate investments.
Many people are hesitant to engage in real estate because they believe it is risky or requires a large sum of money. Neither is correct.
For a variety of reasons, real estate is an excellent investment. You can benefit from high rates of return, significant tax benefits, and the ability to use real estate to grow your wealth.
Here are the top five reasons why real estate is a solid investment to reassure you.
It offers better returns with less volatility
Unlike traditional investments, which fluctuate with market performance, real estate returns are rather steady and predictable, and as the value improves over time, they provide a reliable source of income.
The amount of time you hang on to your property will reduce your chance of loss in real estate. As the market improves, so does the value of your property, and you develop equity as a result.
In the stock market, the risk is constant, and there are various events beyond your control that might harm your investment. Because your property is a tangible asset, you have more control over your investment. You may use it to generate several revenue streams while also enjoying capital appreciation.
Other investments, such as stocks that can go to zero or a new car that loses value over time, can leave you with little to no actual asset value. Homeowners insurance will protect your real estate investment, so shop around for the best coverage available to ensure that your asset is covered in the worst-case scenario.
Read: 10 Questions to Ask Your Landlord Before Signing a Lease
Real estate values will always appreciate
Rental revenue, any earnings created by property-dependent economic activity, and appreciation are all ways for real estate investors to profit. Real estate values rise over time, and if you make a wise investment, you can profit when it comes time to sell. Rents also have a tendency to climb over time, which might result in increased cash flow.
Making upgrades or repairs can potentially boost the pace of appreciation. Because not all improvements increase a home’s value, consult a certified assessor or real estate agent to determine the best (most valuable) renovations to do.
Although you won’t get a dollar-for-dollar return on your investment, some improvements can repay as much as 80% to 90% of the money you put in.
Renovations do not have to be extensive. Of course, adding a room or finishing a basement will add more value to a property than simple cosmetic updates, but even minor kitchen and bathroom updates can have a significant impact on its value.
The housing market has always rebounded from previous booms that caused house appreciation to fall, and those who hung on to their assets during those uncertain times have seen prices return to normal and appreciation resume. Real estate investors in the best-performing markets are now reaping the benefits.
Real estate investments can diversify your portfolio
Another advantage of real estate investing is the opportunity for diversification. The link between real estate and other main asset classes is modest and in some circumstances negative. This indicates that adding real estate to a diversified asset portfolio can reduce portfolio volatility and increase the return per unit of risk.
If you’ve ever discussed investing with a financial advisor, you’re well aware of the need for diversity. When you diversify your portfolio, the risk is spread out. Real estate will always be a safe tangible asset to diversify your portfolio’s risk. Many people have gained fortune purely through real estate investments.
Real estate investments come with tax benefits
Real estate investors, like any other business owner, can take advantage of numerous tax deductions. When you own a property and rent it out, though, you are running a business – you are the landlord.
Mortgage interest, cash flow from investment properties, running expenses and charges, property taxes, insurance, depreciation (even if the property increases in value) and other perks are all tax-deductible. People want to take advantage of the numerous tax benefits before the end of the year, thus the end of the year is a highly busy time for real estate!
Always consult your tax professional before thinking you can deduct expenses, but keep in mind that real estate investment is a benefit. You can only write off capital losses if you sell an asset for less than you bought for it when you invest in stocks or bonds.
Real estate investments earn you Regular Cash Flow
After mortgage payments and operating, expenditures have been met, cash flow is the net revenue from a real estate investment. The capacity to produce cash flow is a significant advantage of real estate investing. In many circumstances, as you pay down your mortgage and increase your equity, your cash flow will improve.
You can generate monthly cash flow by renting out real estate if you buy and hold it, which boosts the benefits of owning real estate because you aren’t dependent solely on appreciation but also on monthly rental revenue. Of course, there’s always the possibility of tenants defaulting or abandoning the property early, but any investment comes with a risk. There can be no profit if there is no risk.
You Can Leverage Your Investment
The use of various financial tools or borrowed resources (e.g., debt) to boost the possible return on investment is known as leverage. For example, a 20% down payment on a mortgage gets you 100% of the house you want to buy—leverage. that’s Financing is easy to come by since real estate is a physical asset that can be used as security.
There aren’t many other investments that allow you to put your money into assets that are worth substantially more than you put in. If you have N10,000 to invest in the stock market, for example, you can typically buy only N10,000 worth of stock. The only exception is if you invest on margin (borrow), which requires you to be an accredited investor with a high net worth.
You can invest in real estate by putting down a fraction of the home’s cost. Let’s assume you found a home for N1,000,000 and put down N500,000; if you have decent credit and a steady salary, you should be able to get a loan to cover the remainder of the cost.
That means you just have to invest 10% of the asset’s value to own it. Then, as you pay down the mortgage, you’ll be able to keep more of the investment over time, boosting your rate of return not only by paying down the mortgage but also by the natural appreciation of real estate.
The Bottomline
Real estate is a fantastic opportunity to broaden your investment horizons. You can reduce the risk of high-risk investments, such as stock market investing. Furthermore, if you invest in rental properties, you can benefit from the income flow while the property appreciates, providing big capital gains when you need it most – in retirement.
If you need it to be, real estate can be a liquid asset. Don’t invest money you won’t need right away, but keep in mind that any money you put into real estate can usually be liquidated within a few months if necessary.
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