Understanding Real Estate and its benefits…
Real estate is simply the land and things attached such as buildings or improvements to the land.
Real estate has different land uses. Some people own land zoned for residential living, while others own commercial property for offices, or industrial property for buildings and warehouses.
Real estate involves long term commitments and is an illiquid asset that cannot be quickly bought or sold within the second like a stock can.
Since you’ll be owning real estate or land for a long time you have to consider the long term commitments. These include repairs and maintenance, property taxes, insurance, and the future use of the property as laws and times change and cities grow and develop. Real estate involves large transactions as you have to generally have large sums of capital to acquire it whether it is your own money or the financing of a third party.
When you sell real estate, you receive a large sum of capital.
This is typically one of the largest expenses the average person undertakes in their life when seeking a home to purchase so the lessons learned today will not only help you in real estate investing but in life.
Finally, real estate involves long gestation periods as development plans take a long time to materialize.
When demand for housing exceeds supply due to an increase in population, developers begin building new real estate to increase the supply available and ease the demand. 90% of millionaires credit real estate as a major contributor to their net worth. It will be a major factor to your net worth also and help you join that elusive millionaire status club..
Real estate is a vital aspect of our economy in terms of job creation and can create substantial wealth as well for investors. There are also many submarkets that benefit greatly when people buy and sell real estates such as the construction industry and all the companies who create things people buy for their homes such as furniture, appliances, and random items..
Benefits of Investing in Real Estate are-:
1. Portfolio Diversification
Real estate adds diversification to an investor’s portfolio so that they are not only invested in stocks, mutual funds, and bonds. Diversification spreads out risk and allows investors the chance to maximize returns when the different assets go through growth stages. When real estate is hot, the investors’ real estate investments will give a higher return to the investor than the other investment holdings, bringing up the value of the entire portfolio.
Owning physical real estate allows you to be in control and real estate values move much slower than the stock market. By owning physical real estate, you’ll always own something of value, while owning a stock can become worthless in an instant because it’s not real like physical property and land.
So when you think about investing in real estate, think about the true and real way of investing which is buying physical land to own.
2. Financial Leverage
Real estate investors are attracted to real estate because it allows them to use financial leverage to their property. Financial leverage, in simple terms, is the use of other people’s money and not using your own. You are “leveraging” someone else’s capital.
The finance industry makes debt capital readily available to most investors if you have a good credit score and prove you don’t need the money by showing them a healthy net worth and steady income. Lenders will typically be willing to provide up to 70% of the value of the home.
Leverage allows an investor to control more real estate using other people’s money than they could otherwise with just their own money. Leverage magnifies returns but can also magnify losses if things don’t go well for the investor.
20 Reasons to be a real estate investor.
You might be asking why someone would want to be a real estate investor so I’m going to rapid fire through a lengthy list of reasons real quickly for you and hopefully you can relate to several.
1: 90% of millionaires have become a millionaire as a result of owning real estate. It adds substantially to your net worth.
2: Entrepreneurs have a greater opportunity to become wealthy through real estate than other businesses they may wish to start.
3: Real estate doesn’t require a degree from college and doesn’t care what GPA you got, nor care where you went to school.
4: Real estate doesn’t discriminate based on age, race, background, etc. but laws make it so that you have to be at least 18 years of age to purchase real estate as this is the age you are legally perceived as having the ability to read and understand contracts.
5: Credit scores don’t matter in real estate as there are many other ways to purchase real estate besides bank financing. If you use bank financing, then you will need a credit score.
6: You can participate in real estate without using any of your own money.
7: You don’t have to be involved in real estate full time to be successful.
8: You can invest in real estate even if you have a full time job.
9: You can live in another state or country and still invest in real estate in a specific city other than the one in which you live in.
10: Real estate can provide you with steady monthly income.
11: Overtime, your tenants monthly rent payments will pay down your mortgage as well as other expenses such as maintenance, taxes, insurance, and still leave you money left over to live off of or to reinvest.
12: The Revenue Agencies says that the majority of tax payer wealth is held through real estate.
13: Real estate is more tax advantaged than other investments.
14: One tax advantage of real estate is depreciation because the IRS knows that overtime the structure built on the land, such as a house or apartment building, will break down thus they let you deduct depreciation expenses from your income to lower your taxes.
15: The government gives you tax incentives to own real estate in order to motivate people to own real estate.
16: Barriers to entry such as education/knowledge of real estate investing keep many people away from ever participating because they don’t understand it and don’t feel qualified enough to try it.
17: Real estate uses the power of leverage which can allow you to own more real estate than money you put into the deal unlike stocks where you buy only how much you can afford and you have to have a lot of money before you start earning decent income from dividends.
18: You can make money in both up and down markets. By purchasing property at the right price you can protect yourself from bad times and do very well in the good times.
19: Real estate pays you based on results, not based on hourly wage or salary. Therefore, you control how much you want to earn and aren’t capped by your boss or employer
20: Real estate can provide you financial freedom and allow you to live off of the passive income, no longer needing your job. Many join real estate investing to someday make enough money to quit their jobs.