fbpx

The Value of Real Estate

 

The Value of Real Estate

 

It is a well known assertion in real estate circles that more people have become wealthier in the USA through real estate than any other pursuit. The benefits of investing in real estate are extensive. With well placed assets, investors can enjoy predictable cash flow, passive income, outstanding returns, tax advantages, and diversification, and it’s possible to leverage real estate to build wealth. Let’s take a deeper look at how these various benefits of real estate investing really work.


Leverage 

Leverage is essentially borrowed capital. This is the concept of using “Other People’s Money” (OPM). This idea can be illustrated by purchasing a home. A down payment on a mortgage gives you 100% of a home – that’s leverage. Real estate is a concrete asset that can serve as collateral, so financing is possible through banks. And that is where most people stop. There are many pitfalls to bank financing, and a better system is available. We will cover this further into the book.


Cash Flow  

Cash flow is defined as the net income from a real estate investment after loan payments and operating expenditures have been made. A key advantage of real estate investing is its ability to produce cash flow. In many cases, cash flow only gets stronger over time as you pay down your mortgage—and incidentally, grow your equity.


Capital Appreciation

Real estate investors make money in various ways. These include rental proceeds, any profits produced by business dependent activity with said real estate, and equity appreciation. Very often, real property values increase over time, and with a proper investment strategy, you can net a large gain when it’s time to sell the property. Due to inflation and other factors, rents regularly rise over time, which in turn can create greater cash flow.


Building Wealth and Equity

As you pay off a mortgage, you build equity—an asset that’s included on your balance sheet as part of your net worth. As you grow equity, you can purchase additional properties. The more you do this, the greater your cash value and wealth can grow. This is a key reason why real estate investing is a scalable business.


Tax Advantages

Real estate investors can benefit from many deductions and tax breaks that can save money come tax time. Typically, you can deduct the costs of possessing, operating, and managing a property. Keep in mind you can depreciate the cost of the building itself, but not land. Because the cost of purchasing and renovating a real estate property(s) can be depreciated over its useful lifespan (27.5 years for residential properties; 39 years for commercial), you take advantage of many years of deductions that can lower your taxable income You can also take advantage of the 1031 Tax Code that allows for tax-deductible transfers of property, which allows you to further defer taxation.


Diversification

Real estate investing diversifies your portfolio. Diversification is all about investing in different asset classes to spread risk. Real estate tends to have very low correlation with the fluctuations of other asset classes like stocks, so it is a robust tool in diversification and in reducing volatility in your overall portfolio.

 

Inflation Hedging

The inflation hedge of real estate comes from the correlation between GDP and Supply & Demand. Expansions in the market drive rents higher because demand is higher. This provides higher capital values. Real estate maintains purchasing power by passing along some of the inflation pressure onto renters and tenants.

 

Competitive Returns

Real estate returns are a factor of management, location, and asset class, amongst others. A benchmark most real estate investors seek to exceed is the S&P500 Index, and many times they do achieve this goal. To put this into perspective, the average annual return of the index over the last five decades is over 11%.


In summary, there are very clear and real advantages to investing in real estate. It cannot be overlooked as an investment strategy for the acceleration of your wealth building capability. That being said, keep in mind, there are some major drawbacks to the current financial systems in place to facilitate real estate investing. One of the biggest drawbacks to investing in real estate is the sheer lack of liquidity. Timing is a huge factor when it comes to investing in that next deal, and it can take months for financing to be completed with a bank. This reliance on banks puts real estate investors into a bind. In some of the following articles, we are about to show you how to divorce yourself from reliance on banks and open an entirely new way to view real estate investing.

Schedule A Free 30-Minute Consultation

Our Financial Expert Advisor will personally reach out to answer all of your questions.

Schedule a free 30-Minute Consultation

Our Financial Expert Advisor will personally reach out to answer all of your questions.

Our Support and Sales Team is available 24/7 to answer your queries

Our Support and Sales Team is available 24/7 to answer your queries

Other Pages

Quick Links

Other Pages

Home  |  About Us  |  Services  | Contact | Project  |  Testimonial  |

Quick Links

Privacy Policy  |  Terms and Conditions  |  User Agreement  |  Disclaimer  |  Credits  |  FAQs  |