real estate investment

10 Reasons Why Real Estate Investment Is the Best

Reading Time: 5 minutes

Let’s talk about real estate investment.  Some experts advice that investing in real estate is a bad idea.  They reason that properties don’t have the kind of liquidity that assets like stocks, bonds, and mutual funds have.  They also reason that Investing in real estates requires huge capital outlay.  And it’s an asset class that depends so much on cash flow.

Truly, these are the downsides to real estate investment.   If these factors are not properly understood and managed, an investor may lose money.  But which investment type doesn’t have a downside?  I am yet to see one.

Every billionaire you see around, all over the world, have large real estate asset in their portfolio.  If real estate investment is bad, why is it a toast for billionaires irrespective of their primary areas of businesses or work. In this article, I shall tell you why and show why you should invest in real estate.

In case you don’t know, real estate asset include residential houses, office complexes, shopping malls, as well as developed and undeveloped land.

10 Reasons Why Real Estate Investment Is the Best Investment You Can Make

Now let’s keep it short, here are 10 reasons why you should invest in real estate.

  1. Store of Value  

Store of value is the power of an asset to maintain its value over time without depreciating.  Historically, real estate assets outperform other classes of assets in terms of store of value and returns.  Apart from government backed securities, real estate investments is one of the safest investments available because its value rarely goes down.

Even if price goes down, for example, in a depressed economy, it is often a temporary set back for the value will certainly goes all up in a short while.

2.  Capital Appreciation

If capital appreciation is your goal, then you will never go wrong with real estate.  Not only does real estate asset maintains its value over time, it also grows in value for you due to constant demand.  This is because properties benefit from both natural and forced appreciation.  

Natural appreciation occurs when their is an increase in demand for properties due to natural causes.  For example, increase in population and the need for people to have more places to live, shop, work and recreate is a natural tendency that drive property prices up.  

On the other hand, forced appreciation occurs as a result of improvement on the property. It may just be a little renovation, a fresh coat of paint,  a touch on the roof or installation of solar panel.  Any improvement is capable of increasing the value of your property.

The average home everywhere in the world appreciate by 3% every year and over 10 years property values double.

3.  Tax Benefits

The government love real estate investors and treat them somehow differently and give them a lot tax incentives.  Why?  Housing is an essential commodity and real estate owners are seen to be helping the government to provide that commodity.

They provide housing for the people and add value to land by developing it.  That’s why real estate investors are called developers.  In some economies, the amount of tax benefits government avails to real estate investors is not enjoyed by small and medium sized enterprises.

Amongst other concessions, government often subject the following property development and management expenses to tax deductions: cost of repairs, improvement, maintenance and upkeep.

 4.  Passive Income

This is perhaps the most important benefit of  real estate investment. Passive income is that income that you consistently earn even when you are not working to get it.  When some people say they are making money while they sleep, they are often referring to their passive income sources.

The world richest investor, Warren Buffet once said “If you don’t find a way to make money while you sleep, you will work until you’.

If you have a rental property in any city, you will live off the rent from that property for life.  You will not build that particular house again, you need not even improve on it, if you don’t have and you will still get tenants to occupy it.

There will always be a demand for housing and people will always be willing to pay rent.  The alternative to living in a house cannot be imagined.

5.  You Benefit from Market Cycles

Financial markets gyrate, it goes up and comes down.  The real estate market is not different.  It has its own share of market cycles. 

But real estate investors take advantage of the cycles to make more money.  Periods of falling prices is an opportunity for them to buy good properties at bargain prices.  And because the cycle is always short, it is not long before they offload the property at huge profits.

Market cycles is good for real estate investors.  Besides, no matter how low property prices come, it doesn’t get to that point where price is below your cost of acquiring that property at any point in time. 

6.  It is Tangible

If you are that kind of person who love to see and touch and your asset, then invest in real estate.  Some people look at paper assets and similar financial instruments like shares, bonds, cryptos, etc as imaginary.  They want to see what they own.

Real estate investment cannot be stolen or moved, even if your miles apart from the location of the asset.  And in a period of emergency, you take it from the tenants and use it for residence or office.

7.  Access to Funds

With a real estate asset, you can easily access funds from financial institutions.  Banks love properties as collateral for loans because they know it is a good investment whose value will always go up. Even if they do not sell the property to recover their money in event of default, the asset can be deployed into other uses.

Government agencies also give incentives and even access to funds for people who want to buy their homes.

8.  Leverage

Investing in real estate allows you to make use of leverage financing.  Or use other people’s money very effectively.  

In well developed markets with working mortgage financing, you really don’t have pay the full value of a house to own it.   All it requires is that you make down payment, say 20% of the the cost of the property and take a mortgage on the rest 80%.

Thereafter, you let out the property and use the rental income to pay down on the mortgage.  Smart investors even make profits while using tenants rent to pay for the property.   All they do is make sure that income coming from the rent is more than the rental on the mortgage.

Ninety percent of all millionaires are invested in real estate assets.  I guess you know why now. It’s because of leverage funding.  There is also a possibility of getting a refinance with real estate.

9. Easily Transferable

Real estate asset is very good for building a legacy wealth because you can easily transfer it to your children.  In different cities of the world, the wealthiest families are families with legacy wealth.  Families whose grand parents bequeathed with valuable real estate properties.

If the children do not squander the assets by selling to convert to cash. And are able to acquire their own properties in addition;  by the third generation they would have been able to build a generational wealth.

10.  It is Insurable

Every piece of real estate asset can easily be insured. In fact, just like the banks, Insurance companies also love properties.  Insurance gives you a succor on the occurrence of an unexpected event that damages the property. 

It gives you protection against burglary, natural disaster as well as protect you from law suit.

Finally

Are you fired up to start real estate investment, there are many ways you can do it.  Don’t be discouraged by the amount of money you may need to start.  A journey of a thousand miles begins with a step.  This other article shows you the many ways you can invest in real estate.

Good luck

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Buchi provides small business owners with strategic, financial, and digital support to help them build strong, successful and profitable enterprises.

He is a Blogger at night and by day, Team Lead at Stalwart Investment Partners Ltd, a research, business and investment advisory firm.

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