Yes it is, with some qualifications it is a safe investment
Real estate can generate huge riches. It can also drain investors’ accounts and leave them in debt. Real estate is risky like any investment. It’s crucial to examine the advantages and downsides before investing in real estate as a safe investment.
8 Real Estate Investment Benefits
Real estate investing provides monthly income flow and equity. We’ll list the benefits of real estate investing next.
Real estate is unique because you can buy it with OPM. Investors can borrow money or finance numerous properties at a fraction of the cost. Unlike stocks and bonds. Say you wish to buy a $200,000 rental property. Financing requires 20% down, or $20,000 plus closing expenses. You leverage OPM like a bank to buy rental property for long-term appreciation and equity. Rent should pay your mortgage and more. Real estate investors might use their rental property equity to buy more properties or make changes. To avoid capital gains taxes, investors can perform a 1031 Exchange.
Home values have risen with inflation. Real estate appreciates, unlike autos. However, appreciation potential depends on your rental property’s location and market growth.
Imagine this: You start a store for a stranger. This person ignores you and walks past. Would this indifference bother you? Why yes? People usually say thank you. So not being acknowledged can be depressing. If you didn’t expect a thank you, it’s a bonus. Appreciation is a bonus for investing in a good real estate market. Smart investors will monitor local market movements. Home values will rise in a market with rapid job, population, and infrastructural growth.
Investors can “force” appreciation. Maintaining the property by making repairs and modifications is one way. Bigger enhancements over numerous years offer long-term worth and solid appreciation.
Rental Property Tax Advantages can be a safe investment
Real estate is a tax-deductible safe investment. Rental property owners can claim many tax deductions, including:
- Mortgage interest Depreciation
- Maintenance costs
- Management fees
- Rental losses
- Insurance Utilities
- Capital expenses
- Appreciation taxes—inherited property gets a “step up” to fair market value and isn’t taxed on appreciation.
Passive Income/Cash Flow
Long-term real estate investments work. However, a property may generate cash flow quickly. Rents can be collected passively once the property is occupied. Run the figures to buy a cash-flowing home. Carefully consider all costs, including the mortgage. Compare local rental rates for comparable properties. This will show you how much rent you can charge tenants.
Cash-flowing safe investment properties have mortgages and monthly expenses less than rental income. Refinancing at a cheaper rate will increase your monthly margins if mortgage rates drop.
Tenants paying the mortgage makes real estate a profitable safe investment. Equity is free money. You may not have cash now, but you’ll get the huge payoff afterwards. Retirement fund. Real estate equity grows as renters pay down the principal mortgage amount. Fixed-rate mortgages have fixed monthly payments.
More Stability & Control
Stock market investments fluctuate daily. The stock market is more volatile due to economic considerations and varied markets. The real estate market is less volatile. Short-term market drops won’t harm real estate’s long-term profit. When the Coronavirus hit the U.S., the stock market plummeted and other markets and sectors followed. After the pandemic, home sales plummeted. However, home values rose as normal, and home sales in many markets have recovered. With the Federal Reserve cutting interest rates again (~3%), homebuyers and refinancers are getting absurdly low rates.
Inflation raises prices and devalues the dollar. In 1987-1988, in-state tuition at a public four-year university averaged over $3,000. In 2019–2020, in-state tuition averages $10,440. Inflation may appear awful, but property owners benefit. Real estate, a real asset, appreciates with inflation. Rental properties are goods and services. Inflation raises monthly rents.
Borrowing to buy real estate can help you capitalize on inflation. A 30-year fixed-rate loan guarantees a fixed monthly mortgage payment. Your mortgage will diminish while your property appreciates over the next few years. Inflation eats debt, making real estate a terrific inflation-fighting investment.
Diversification Reduces Risk
Investing requires diversification. A diverse portfolio across industries reduces risk. Real estate is unaffected by stock market swings. Having both wills reduces danger.
Real Estate Investment Cons
Real estate is risky like other investments. Some bonds and CDs are risk-free yet have low returns. Let’s consider real estate’s drawbacks before investing.
Financing an investment property makes it easier to acquire, but you still need a lot of cash. A 20% down payment, closing costs, and initial repairs and modifications are required to enter the real estate market. Consider insurance, mortgage payments, property taxes, and maintenance. That may be too much for many investors.