I may sound a little bias but I am convinced that real estate investments are the best investments. Real estate is what I love; it’s my passion and it has served me well. As I was driving home the other day I was thinking about how grateful I am to be able to do what I love and reflecting on the reasons why I have found real estate to be the best investment. I have outlined my conclusions below.
The Top 10 Reasons Why Real Estate is the Best Investment
1. Real Estate Investments are Tangible. They are investments that you can touch, feel and understand. The abstractness of most investments has always been hard for me to swallow. There is nothing like the feeling of driving by a piece of real estate you own. In the case of land investments, you can enjoy them for recreational purposes like hunting, ATV riding, etc. These returns on your investment are things that are often hard to put a value on and often outweigh the financial benefits.
2. You have Full Control. Unlike stocks, commodities, and insurance, you have full control of what decisions are made with the real estate you own. Instead of your fate being held in the hands of people that you will most likely never meet, real estate puts the process and the results in your hands.
3. You can Create Value Beyond Market Driven Value. Because the price of real estate is set by each individual you can often find underpriced deals that allow you to buy well below the market. You can also buy a distressed property, make improvements and create equity. In the case of land investment re-zoning and/or taking large tracts and selling off smaller tracts can generate huge returns.
4. Tax Benefits. Real estate has tax benefits that can increase the return on your investment. Long Term Capital Gains and Depreciation can be utilized to keep more money in your pocket. When utilizing financing on a property you can right off the interest expense as well.
5. Tax Deferred Exchange. When selling real estate you can do a 1031 tax deferred exchange and defer all taxes due on the profit. This allows investors in real estate the ability to use pre-tax dollars to purchase property. This increases your cash available to purchase new investments, which in turn maximizes your buying power and generates greater cash flow. 1031 exchanges also defer taxes until later in life when most will likely be in a lower tax bracket, or even avoid taxes altogether if the property is held until death.
6. Leverage. No other investment I know of allows you to finance your purchase. The fact that real estate is the only investment that banks will lend money to says a lot for its security and value. Leverage allows you to use other people’s money to buy real estate, drastically increasing your ability to increase your portfolio. Investors can also refinance properties, taking most if not all of their cash out of the deal (tax free) and use leverage to hold the property while utilizing the cash on other assets. Imagine doing a 1031 Exchange, buying an asset with pretax dollars, and avoiding payment of taxes, then refinancing the asset and receive the cash you just exchanged…
7. Cash Flow. Real estate allows you to earn equity and steady growth while providing a monthly cash flow. The best of both worlds! If leverage is utilized, a tenant can pay off your mortgage, provide you cash flow and, and in 15-30 years, you can have a free and clear property!
8. Insurance. Insurance allows you to hedge most losses. Unlike many other investments, if a catastrophic event were to destroy the real estate, insurance would cover the loss.
9. An Essential to Life. We all need a place to live, so why not own something that everyone needs?
10. Limited Commodity. They are not making any more land! That is why you see houses in high density areas being demolished to build new homes. The land appreciates to the point that the structure is irrelevant. Limited Commodities are great investments, but I especially love those that provide cash flow while they appreciate, that I can leverage, insure, and pay the debt off with other people’s money!
Each of these reasons could be their own blog, but I wanted to at least give you a brief overview of these benefits. If you would like to know more about any of these advantages in real estate investments please leave a comment below and I would love to discuss it more with you!