5 Reasons Real Estate is a Good Investment
by Omar Ruiz
Real Estate is an investment vehicle that’s helped many people build wealth. When purchased properly, real estate provides good returns and a tangible asset that can benefit generations to come. There are different sectors within real estate that allows people to find a position or segment that is comfortable for them. There are many reasons why real estate is a good investment. This article highlights the top 5 reasons real estate is a good investment.
Reason #1: You Can Leverage Your Investment
Real estate is one of the few investments bankers will lend you money to buy. You can own the real estate by paying a portion of the money to buy it. The numbers on the deal and borrower’s credentials are a factor for the lender. If you purchase real estate at a good price and the numbers work, bankers will lend you the majority of the money to purchase it. But it’s not just bankers that help you purchase real estate. There are non-bank lenders that will fund the deal, such as bridge lenders, hard-money lenders, agency lenders and even private individuals. Being able to borrow money is one reason real estate is a good investment.
Reason #2: You Can Earn Regular Cash flow
Depending on the real estate and how you purchased it, real estate can provide regular cash flow from the rents it generates. Any money left over after all expenses are paid is cash flow for the owner. This cash flow can grow substantially, turning your real estate into a good investment. Over time as rents increase the income generated grows. The cash flows can come from multiple sources within the property, such as laundry income, pet rents, utility bill backs, etc.
Reason #3: You Can Force Appreciation
The value of your real estate can increase by doing things to it that generate more income, reduce expenses, improve it or change its use. The right combination of things will cause it to appreciate, making your real estate a good investment. With rentals there can be renovations, remodeling or construction activities that can bring more income and increase its value. Properties purchased at a discount because of deferred repairs can appreciate after repairs have been fixed. Fixing the repairs brings the property to market value or even exceeds the market’s value depending on the degree of improvements. The change of use of properties for vacation rentals (Airbnb) has been a popular strategy to generate income beyond standard market rents and force appreciation.
Reason #4: Reduced Volatility
In comparison to other financial assets and businesses, real estate is less volatile. It benefits from “proof of concept” by its ability to generate rents and is typically affected by local market forces. Outside forces that commonly affect stocks, bonds and other financial assets have little to no effect on real estate. When other financial assets experience turbulence due to industry sector instability; national & international governments’ actions; unrelated market moves; economic news; wars, etc., there’s typically no effect on rents. Rents are determined by local market forces, which can make real estate a good investment.
Reason #5: Higher Returns with Moderate Risk
All investments involve a level of risk. Investments with more risk should compensate investors with higher returns. Real estate investments have their own level of risk, depending on many factors. These factors include, but are not limited to the type and condition of the property itself; the surrounding area; the income potential, and other factors unique to specific property. The advantageous thing with real estate, when compared to other financial assets, is that due to the reasons mentioned in this article and especially when they’re combined, real estate can allow for returns that are beyond the risk profile of the property. This makes real estate a good investment because of its potential to outperform its risk factors.
There’s Plenty of Reasons
This article describes 5 reasons real estate is a good investment. There are other reasons such as tax benefits, but I’ve focused on the most general. The important thing to remember is that to achieve a good investment, it starts with buying right. If you overpay for real estate, it can be a tough situation. You could lose money. You need to do your due diligence. When purchased properly and managed well, real estate is a good investment that builds wealth and can last a long-time.
Copyright ©2022 LeRu Investments LLC. All Rights Reserved.