Pros and Cons of Real Estate Investing

Well-chosen real estate appreciates over time, generally at a rate that far outpaces annual inflation. Yes, there are occasional market corrections, and people can buy the wrong Click here to explore type of property at the wrong time. But I’ve found there is always a chance to buy a quality property at a discount, make improvements to increase equity and eventually sell for a profit.

Real Estate Appreciates Over Time

It’s the real estate equivalent of the stock market mantra to “buy low and sell high.” And real estate always has an intrinsic value. A stock can go down to zero, but a property is a tangible asset that will always have value derived from both the raw land and the “improvements” (the building structures attached to the ground).

And if you can purchase real estate in up-and-coming markets, the potential for appreciation goes up even more.

Real Estate Has Unique Tax Benefits
Real estate’s unique tax benefits allow investors to grow their wealth over time. Plus, rental income is not subject to self-employment tax, and the government offers tax benefits to real estate investors. These include depreciation and significantly lower tax rates on long-term profits.

And depending on your income level and classification as an investor or real estate professional, there is a good chance your rental property will give you an overage of tax deductions you can use against your other income. Rental real estate is a business, which means many expenses, such as travel costs to check on your properties, are tax-deductible expenses of running your business.

Real Estate Provides a Steady Cash Flow
Rental properties can provide a steady flow of monthly income called “cash flow.” This is the extra money that is left after all the bills have been paid. Once your property is set up, cash flow provides ongoing, monthly income that is mostly passive, allowing you to spend your time building a business, spending time with family, or reinvesting in more real estate.

If you’re looking to buy a rental property and need help figuring out the market, you can use a free service like HomeLight to find a real estate agent in your area who can help you find the best deal for you.

Real Estate Lets You Use Leverage
You can use the power of leverage to quickly grow your real estate holdings and accelerate your wealth-building results. Leverage is the use of borrowed capital to purchase and/or increase the potential return on investment. Leverage, when used wisely to minimize risk, is a powerful advantage of real estate investing. Using a conventional loan, you can buy an investment property with a 20% down payment.

So, for example, with an initial investment of $30,000, you get the opportunity to control — and get all the benefits of owning — an asset worth $150,000. Done with proper due diligence, you can build your wealth exponentially using leverage, especially in the low interest-rate market we’re currently enjoying.

You Don’t Need Much Starting Capital
While it might surprise you, it’s incredibly easy to invest in real estate without much money. This is thanks to the rise of crowdfunding sites that let you invest in income-generating real estate with a pool of other investors.

The advantage of crowdfunding is that you can create a diverse portfolio of real estate by buying shares in various REITs and individual deals. And it’s a completely passive investment since you’re not the property manager.