4 reasons you should invest in real estate right now
Most Americans work hard for what they have and almost all dream of financial independence leading to an early retirement (or at least the option to leave to work life behind them). Having a diversified investment portfolio is the key to building wealth and achieving financial success. Most successful investors, and some of the wealthiest people in the world, use real estate to diversify their portfolios. In fact, some of the highest net worth individuals place nearly a third of their investment capital in real estate and they are doing it for a reason.
Real estate markets are less volatile
The stock market is notoriously unpredictable as numerous outside factors often feed off each other creating volatility that have real and substantial effects on the investment accounts of millions of Americans. While there is serious money to be made in the stock market, it takes years of study or the hiring of high-priced experts to increase chances of big gains. Even then, it is still a big gamble, and no one really knows what the market will do from day to day. For those with the skill, strategy, and resources, success is possible with the stock market, but the high reward carries a high risk.
Real estate markets, are much less erratic. There are of course exceptions, and all investments carry a certain amount of inherent risk. But with real estate, risk is diminished due to the ownership of a tangible asset that will likely appreciate. Overtime, even if the property or properties do not significantly appreciate, the asset could still have a steady income stream.
The equity built, even if there is an unlikely downturn in rental rates, can be leveraged. This not only offers a safety net but allows for even more financial options.
Rental rates increase, fixed mortgages do not
As almost all real estate investors and every renter knows, rental rates increase at a predictable rate. One of the major selling points to enticing home ownership is the reality that rental rates will increase over time while fixed mortgages will not.
According to the U.S. Bureau of Labor Statistics, rent in the United States continues to increase from month to month, even with the global pandemic affecting many industries. Over the past twenty years, yearly rental rates increases averaged of 3.08% per year. This is significant considering inflation was around 2% during the same period. These average rental rate increases remain impressive given these statistics include the years 2004-2005 when rental vacancies rose as home ownership skyrocketed prompting the burst of the housing bubble in 2008-2009 that fueled the “Great Recession.” The real estate market bounced back and those in it for the long term are seeing the profits today.
One thing we do know, regardless of dips in the economy, overtime rental rates will likely increase over a long enough time period. So, when you finance your investment property with a fixed mortgage, you will see your monthly profits increase over time as rents go up while your mortgage payments remain the same.
The tax benefits
It is well known that real estate provides tax benefits via numerous qualifying deductions available to investors across the wealth spectrum. These deductions do not appear to be going anywhere soon. In fact, recent revisions to the tax code allows for even more tax benefits and it does not look like congress intends to repeal these reforms.
The U.S. Tax code, with its many real estate related deductions, promotes the purchase of real estate. Historically, the federal government creates programs to encourage and promote the purchase of real estate. With that in mind, real estate will likely remain a tax shelter in the United States for the foreseeable future.
Investors can write off depreciation, avoid capital gains taxes through 1031-exchanges, and can borrow tax-free against the equity in the asset.
For these reasons, real estate investors pay less in taxes than people investing in other financial markets.
The future looks great
The real estate market continues to perform very well, and property values continue to rise. The rental market is also performing better than it has in nearly four decades with vacancy rates at historic lows.
The demand for housing is still higher than supply, triggering what some deem a housing shortage. This demand and incredibly low interest rates are driving values higher and higher creating a situation where homeownership, especially in urban environments, is not attainable for many in the population. With the lack of relatively affordable homes, many residents have no other option but to rent.
Appreciating home values and rising rents make real estate investing more and more attractive. Investors throughout the world are looking to real estate as their primary vehicle to create wealth. Shouldn’t you think about added real estate to your investment portfolio?