6 Incredible Benefits Of Real Estate Investing

By: Chad Keeney

Growing up throughout the 1980's and 90's, I can vividly remember the early morning hours (after David Letterman but before sunrise) a special group of snake oil salesmen paid big money to control the television signals. These swindlers would go on and on about the quick easy money that can be made through a few simple real estate transactions.  Yes, ladies and gentlemen, I'm talking about the infamous Late Night Real Estate Guru. Surely you can remember the selling model used by these tricksters:

‘Pick up forgotten homes with no money down, fix ‘em, flip ‘em, and be a multimillionaire by next Thursday

‘Here’s an hour of testimonials from a flock of perfectly symmetrical humans (who are obviously NOT actors), to prove that my overpriced system is the answer to all your prayers.‘

‘Buy my course for only 36 easy payments of $59.99, and you can be filthy rich just like me!’

I’m here to dispel the myths, and add some much needed truth to the conversation. While it’s unquestionable that most of the late night charlatans made more money selling pipe dreams than they ever made in bricks and sticks, the fact that a smart real estate plan can help to secure your family’s future is, indeed… a FACT! We’re going to cut the fluff and take a serious look at some of benefits of investing in real estate. Ok, let’s get started…

Passive Income 

Rental Income

Good tenants spend 40+ hours per week working, and they turn over a significant portion of their income to keep a roof over their head. YOU now own that roof. Collect the rent, pay the mortgage, save for emergencies, and keep the difference. This provides a serious benefit to the community (a living space for someone who can’t, or would rather not buy a home), and a serious benefit for you (residual income).

Potential for Appreciation

According to the United States House Price Index, home values have increased an average of 4.6% year-over-year since 1992.  Ask anyone who has held property for 30, 20, 10 or even 5 years. Chances are, their home is worth much more now than it was when they bought it. The fact is: There’s only so much dirt. As long as we keep making people, values are going to continue to increase. It’s simple supply and demand.

Tax Benefits

Tax Deductions for Mortgage Interest

You can deduct the interest on your mortgage and other expenses related to your property, such as property taxes. This can help lower your taxable income and reduce the amount of tax you’re required to pay.

Defer Capital Gains Taxes

If you sell a rental property at a profit, it's possible to defer capital gains taxes through an IRS 1031 exchange (like-kind exchange). This allows investors to reinvest their profits into another investment without paying any capital gains tax on those earnings until they sell again--or never sell at all! The benefit here is that if an investor has several properties throughout their lifetime, they may be able to keep them all indefinitely without ever paying any capital gains taxes on them because they being exchanged with each other under this rule. There are some limitations on what types of properties qualify for these exchanges; however most single family homes do qualify.

Leverage

When buying stocks, the process is pretty straightforward. Take money out of your pocket, give it to your stockbroker, and pray that ENRON isn’t cooking their books. In a few years, if you’ve played your cards right, you may come out a little ahead of inflation. The bottom line in the stock and bond market: If you want to play, you have to pay... with your own cash. With real estate, while no-money-down is typically a fallacy, the use of other people’s money to leverage your own is the name of the game. As long as you keep your finances in order, finding outside money is easier than you may think. From banks and mortgage companies to private lenders, if the deal is good, and the deal maker (that's you) has a history of paying his/her bills, someone should be willing to pony up the cash, it's what these guys do for a living.

Control

You control the property, which means you can decide when to buy and sell. You also control the value of the property to a large extent. You may be able to add value by renovating or improving the property, which will increase its value over time and make it easier to sell at a higher price when the time comes.

Diversification

I’m sure you’ve heard the saying ‘Never put all your eggs in one basket.’ Diversification is an important concept in the investing. It refers to the ability to spread your risk by investing multiple asset classes. By investing in residential real estate, you can achieve this goal because it provides a unique opportunity for portfolio diversification, allowing you to protect yourself against market downturns and enjoy higher returns over time. You can spread your risk across multiple properties rather than having all of your money tied up in one investment.

Hedge Against Inflation

One of the most important benefits of investing in residential real estate is that it can hedge against inflation. Inflation is the rate at which prices for goods and services rise over time, and it's something that most investors need to be concerned with because it can have a significant impact on their investment portfolios. Remember the 4.6% annual increase in value that we discussed earlier? That out-paces the average annual inflation rate of 3.8% (according to worlddata.info) 

In Conclusion

The benefits of investing in residential real estate are many. You can earn a steady income, build equity and increase your net worth. If you're looking to purchase a home or make an investment, you don’t need to spend thousands of dollars on an infomercial course (they really aren’t going to give you what you need to succeed anyway). It is important to begin by finding an investor friendly Realtor who also invests in real estate. If you live in Virginia, I’d love to help. This is my passion, my purpose, and my calling.  If you live in another state, I can help you find the right Realtor for your needs.