When it comes to investing, most people don’t start out with real estate. It seems like a daunting proposition for those who have never done it before. It’s big money and a big commitment. Investors often start small: stocks and bonds, the S&P 200, and robo-investing. We want to minimize risk exposure and dip our toes in without risking too much of our hard-earned money.
There’s nothing wrong with that.
However, as we’ve seen throughout the year, stocks and bonds are not always a sure thing. Some investors have time to wait for the market to bounce back. Many do not! As an investor, you want to ensure that the wealth you’re building is going to last. You want it to be there for you when you need it.
So many times, that wealth evaporates when investors don’t properly strategize and diversify their holdings. That doesn’t just mean the diversification of stocks, either! To maximize passive wealth, your portfolio must expand even further.
It’s time to invest in real estate.
Why Real Estate Investment? Why Now?
There are reasons to invest in real estate in general and specific reasons to invest during 2020. As a refresher, let’s tackle the general reasons many choose to invest in real estate.
5 Reasons to Become a Real Estate Investor
There are many tax advantages in the real estate investment game. They’re exempt from the self-employment tax, can utilize depreciation, and, in many cases, have a plethora of opportunities to see tax overages on other income. That means your real estate investing can decrease your overall tax liability, just due to deductions and provisions. Not only that, but investors can take advantage of things like the 1031 Exchange, which provides a robust tax-deferment strategy.
Be sure to check out: How Turnkey Investors Benefit from the 1031 Exchange
Cash Flow & Equity
Real estate investment provides both passive cash flow and growing equity. Often, investors use their cash flow to pay down their mortgage month-to-month. Over time, this means that someone else is paying for your mortgage while you gain equity. Ultimately, that’s more wealth and net worth for you!
That’s not even accounting for appreciation, something that real estate typically does over time.
Real estate investment has a big advantage over others — leverage. While you could possibly utilize leverage in other forms of investing, it is by far the norm to have financing in real estate. Because you’re effectively buying real estate with someone else’s money, it allows your own dollar to go further. That means you can scale your portfolio more quickly. Because of the aforementioned cash flow often paying off your mortgage, you truly have that leverage — not just a loan.
Your down payment may be a big chunk of change, but you still gain ownership and control over a property worth much, much more.
A Hedge Against Inflation
Real estate is a long-celebrated way to hedge against inflation. The worth of the U.S. dollar has steadily decreased since the beginning of the 20th century. When the value of the dollar drops, prices grow. This can eat away at the wealth of many investors because their money doesn’t keep pace. Real estate, however, grows alongside inflation. As the cost of goods and services increase, so do rent and property values. You don’t have to worry about inflation stealing your equity!
Perhaps one of the most freeing advantages in real estate investment is that you, the owner, truly have control. So many times, other investments don’t allow for your input or direction at all. You’re at the mercy of the market or big institutions that are more concerned with their own profits than yours. You don’t really have a say in where things go. In real estate, however, the owner has the power.
You choose your markets, your properties, your renovations, your management teams. You decide who to work with and where. You choose to manage your own risk. This is not only freeing, but it allows you to better control and direct your investments overall.
Those were just a few proven, evergreen reasons real estate investment has continued to be the top choice for wealth-building for centuries. But what about right now?
2 Reasons to Invest in Real Estate NOW
Throughout 2020, we’ve seen the worrying ups-and-downs on Wall Street. COVID-19 has made big economic waves, many of them troubling. Real estate, by contrast, has remained steady in values and profit. This is because real estate demand and function have not changed in light of the pandemic. If anything, the demand for single-family housing in suburban areas and smaller markets has increased!
Record-Low Interest Rates
Just last week, the 30-year mortgage rate hit a record low of 2.98 percent — at least for the past 50 years! The downward trend for mortgage rates has been present for decades. There’s no telling whether or not it will dip even lower, but regardless, both homebuyers and investors can take advantage of these stunningly low interest rates.
Ultimately, for the investor, this increases your equity as there is less interest added on to principal payments and less accumulated over time. That means there’s less to pay off and more value for you, the investor!
Of course, low mortgage rates have also resulted in stricter lending standards. However, real estate investors are among those who guard their credit scores and lending status with vigilance. If your credit is in good standing, issues are unlikely.
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