Most people understand that it’s nearly impossible to become truly wealthy without investing in something. If you’re going to start an investment portfolio, you might begin by dabbling in the stock market on your own or with the help of a stock broker. It can be difficult to make much money this way unless you have a sizable amount of cash on hand that you are willing to put into the market. You could opt to invest in real estate instead. There are a lot of advantages to making this decision, especially for the novice investor who is working with limited funds.
1. It’s possible to get into the real estate market without investing a huge cash outlay
That’s not to say that you won’t need any cash. There will be an earnest money deposit, closing and attorney fees, insurance, and some other related costs you’ll have to cover. In relation to other types of investments though, income producing real estate is one of the most financially feasible. It helps to have a working knowledge of the real estate market before you get into it. You should also consider retaining the services of someone like a buyers agent Brisbane investors use all the time. This is someone who knows the market and can help you decide which properties are best suited to your needs and pocketbook.
2. With the right property, you can start earning money right away
If you purchase income producing property with good tenants already in place, you should have a revenue stream immediately. This is especially important for novice investors who need to see a quick return on their investments. Purchasing a property in good condition for the right price, and with a stable rental history, is one of the best ways to get off on the right foot.
If you’ve decided you want to get into the business of flipping real estate, you won’t see that immediate return. In this case, you need to be looking at properties in good locations that need mainly cosmetic fixes and are selling at below market prices. That will give you a far faster return on your investment than if you had purchased property with potential, but also with structural issues that take far longer to correct.
3. Real estate is a physical asset that builds equity and appreciates over time
Real estate is like every other market. It fluctuates. That’s one reason why it’s so important to negotiate the right price for the property you buy. The rent it brings in should be paying for the mortgage. That way your tenant is in essence buying the property for you.
In addition to the equity you have in your property, it will almost certainly appreciate in value over the years. According to Zillow, real estate has been increasing in value at a rate of almost 7% per year for the last several years. It’s possible, if the rate continues, that your original investment could nearly double within a decade. You won’t get that kind of return in the stock market.
4. Buying real estate allows investors to leverage their capital
If you were going to buy $100,000 in stocks, you would need to come up with $100,000 in cash to do it. If you wanted to buy a piece of real estate for $100,000 you would need about $20,000. You can finance the remaining 80%. That makes it easier to grow your portfolio by purchasing multiple properties using the minimum amount of cash and financing the remainder of the debt.
The affordability factor encourages growth and diversification. With the use of property management companies, investors can take advantage of the hottest global real estate markets. You aren’t limited to the local market or have to be physically present in a location to manage property yourself.
5. There are tax advantages to real estate investing
Real estate investors can claim a variety of deductions. They include depreciation, maintenance and repairs, insurance, interest on a mortgage, property taxes, and business related expenses. Those investing solely in the stock market don’t enjoy the same deductions. Real estate investors can use a 1031 exchange to avoid paying capital gains taxes. The more legal deductions you can claim, the more money you keep in your pocket and the less you have to give to the IRS.
6. Real estate investing doesn’t have to be a full time job
If you invest in a business enterprise, you will probably have to commit to long hours. That’s not necessarily the case when you invest in the real estate market. A lot of novice property investors keep their day jobs and do their investing in their spare time. They can get great supplemental income without much effort on their part.
This isn’t usually the case for those who get into the market to fix and flip properties. The time commitment is less flexible, and managing crews, budgets, and schedules requires business management and construction expertise. Real estate investors who are property managers also make a full time commitment.
7. Real estate investors can control their risk
You can decide what kind of investor you want to be. Some people are willing to take risks that realize high returns. Others are more comfortable with minimal risk and slower growth. Lower end assets normally produce higher yields, but they are also riskier. High end assets, on the other hand, traditionally produce lower yields, but are safer. Your risk profile will determine the choices you make.
Real estate gives investors lots of options. You can decide to focus on safe turnkey investments that give you reliable supplemental income. You can fix and flip or manage your investment properties full time. You decide the amount of risk that works for you.