Why Real Estate
10 Reasons Why We Love Investing In Real Estate
1. StabilityReal estate is less volatile and has historically outperformed the stock market
2. Cash FlowIf you purchase a house where the rent can more than cover the mortgage and business operating expenses you are left with recurring cash flow which can be used for saving up to buy more houses or to live off of when retired.
3. AppreciationAccording to the National Association or Realtors since 1968 real estate has appreciated 6% year over year.
4. LeverageWith leverage you are able to control a $100,000 asset for $20,000 thus making your appreciation leveraged as well. Assuming your asset appreciates 6% of the entire property you get a 1:5 leveraged ratio thus a $6000 appreciation / $20,000 investment = 30% ROI. Also you are able to spread your risk around several properties. You could hold 5 properties for $100,000 instead of just one property for $100,000 purchased all cash. Another awesome part about leverage is that you can get a loan that has a fixed interest payment for 30 years. Best of all if interest rates go down you can refinance to a lower rate. As rents increase over time you will still make the same payments on your mortgage thus greatly increasing your ROI over time. This is why real estate is a hedge against inflation.
5. Principal PaydownIf you leverage your property the mortgage payments have a portion of principal payments in each payment which reduces the loan balance. We like to consider this like a forced savings account inside the property. When you sell the property or refinance the principal pay down equity is realized.
6. Ability to RefinanceOne awesome option in real estate is if you do not feel like selling the property and it is producing great cash flow but over the years of ownership your mortgage principal balance has been reduced greatly and the property has appreciated so you can do a cash out refinance. This is where you can pull up to 70-75% Loan to Value of the property. Another great thing is that all refinance proceeds are not taxed.
7. Tax Advantages
Once you own an investment rental property you are now a business owner and you can treat all business expenses related to the real estate as a tax write off. On our own rental properties we write off the mortgage interest paid, certain repairs made on the property, any travel expenses to look at our properties, property management fees, property taxes and that's just to name a few of the tax advantages! Of course consult with your accountant on all this.
One of the largest tax advantages is that you can depreciate the building value of your property over 27.5 years. This means on paper the value is going down when in reality the asset is appreciating.