15 Reasons Why Real Estate is the Best Investment

Real estate investments has long been known as a lucrative avenue, providing individuals with opportunities for wealth creation and long-term financial security. While investing in real estate requires careful consideration and research, the potential rewards are undeniable. 

And even though property prices have gone through the roof over the years, you don’t really need several thousand dollars to start investing- something we’ll shed light on over the course of this article. 

But what are the top reasons for investing in real estate? Let’s explore 15 of them! (There’s never enough… )

90% of all millionaires become so through owning real estate

Andrew Carnegie
Why Real Estate is the Best Investment

Why Real Estate Investment?

Steady Cash Flow

In simple words, cash flow is the net balance after settling inbound and outbound transactions. In terms of a company, the cash moving in and out of the business at any point in time is its cash flow. For real estate, it is the net income from the investment after settling mortgage payments and other operating expenses. 

One of the primary reasons to invest in real estate is its cash flow-generating capability. For instance, if you rent out the property, the monthly payments you’ll receive can work as a reliable source of additional income. Also, as you’ll pay down the mortgage, the cash flow will only strengthen with time. 

Tax Breaks and Deductions

Like running a business, real estate investment also comes with various tax benefits, especially if you let the property out on rent. You’re basically running a business when you rent out the property and you can write off these expenses when filing taxes-

  • Interest paid on the mortgage
  • Maintenance expenses
  • Depreciation (spread over 27.5 years)
  • Origination paints on the loan
  • Homeowner’s insurance, real estate taxes, etc. 

But as tax laws can vary based on the city you’re located in; do consult a tax advisor to better understand the local tax benefits of investing in real estate. 

why invest in real estate

Appreciation in Property Value

Apart from rental income, appreciation also works in the favor of real estate investors. The high cost of purchasing real estate is a great example of how property prices appreciate over time. In the longer run, your property value will most probably rise and help you build long-term wealth. You can look for a trusted real estate investment service to invest in discounted properties with the maximum appreciation potential. 

Also, unlike stocks or bonds, you have the option to forcefully appreciate the cost of your real estate property. For instance, with renovation and repairs, you can increase the market value of your property. You can consult a real estate agent or a licensed appraiser to undertake such renovation projects. 

Stress-Free Way to Build Equity 

As you continue making the mortgage payments, you keep building equity. Over time, the investment will become an asset adding significant value to your overall investment portfolio. And with equity, you’ll have the leverage to invest in more properties in the future, boost your cash flow, and generate more wealth. 

Sure real estate investment also requires some work, especially if the property is let out on rent, it is still significantly less cumbersome than let’s say stocks. You don’t need to regularly track the markets or keep making buying and selling decisions time and again with real estate investments. 

Portfolio Diversification

Diversification is key to building a long-term investment portfolio. If you’re in the process of building your investment portfolio, you can add real estate to get closer to your objectives. Real estate is a tangible asset class not as volatile or complex as bonds or stocks. 

By investing in real estate, you can potentially reduce the risk exposure of the portfolio and enjoy more stable returns. 

Geographical Diversification

The geographical diversification aspect of real estate investment deserves special mention as it allows investors to capitalize on various market dynamics and minimize risk. Investment in properties across regions, cities, or even countries helps divide the risk across multiple locations. 

With the help of location-based diversification strategies, investors can mitigate the impact of localized market fluctuations or economic downturns. 

Passive Income

Searching for a steady source of passive income? If you’re tired of searching for passive income sources online or a side hustle, you should definitely consider real estate investments. Choose a property in an area attractive among renters and you can start earning rental income in a safe and reliable manner. 

Alternatively, if you stay close to a popular tourist spot, the Airbnb business is also worth considering. Several Airbnb hosts accrue high income by letting their property out, generally for short-term stays, while still having the flexibility to use the property at their convenience.  

Real Estate Leverage

A significant importance of real estate investment is leverage. It is one of the few investments where the value of the asset is generally considerably higher than what you’re investing. For instance, you can only purchase stocks worth $10,000 if you have $10,000. The other option is purchasing on margin and we know how risky that can be. 

But when it comes to real estate, homeowners are only required to invest a fraction of the property cost as a down payment. So, it is actually possible to purchase a property worth $100,000 with a $10,000 investment. But to use this facility, you should have a stable income and an excellent credit score. 

Highly Competitive Risk-Adjusted Returns

From the returns perspective, real estate proves to be highly rewarding, especially when you consider the lower risk associated with the investment. According to a report, the indexed annual performance of real estate in the US between 1992 and 2022 is 5.3%. In the same period, S&P 500 delivered annualized returns of 9.65%. 

However, the risk profile of both asset classes is worth considering. The stock market comes with the highest potential risk compared to other investment options while real estate is renowned for stable and consistent returns. 

Hedge Against Inflation

Real estate investment is also a reliable hedge against inflation. Here are some of the ways in which your property purchase can help with inflation-

  • The value of the property can rise higher than the inflation rate to generate capital gains
  • The positive correlation between real estate demand and GDP can increase the rental income
  • As inflation erodes the purchasing power of money, the repayment of a fixed-rate loan can be less burdensome

So, while your living expenses and the cost of all the goods and services will increase with time due to inflation, real estate investment can keep you protected to an extent. 

Long Term Financial Security

With investments like the stock market, you don’t get much in terms of financial security. The market is highly volatile and can end up consuming a good chunk of your investments in a matter of a few hours. Real estate, on the other hand, is a true long-term investment. While property prices fluctuate too, they generally bounce back in the longer run. 

And this feeling of financial security remains irrespective of whether you’re working or enjoying your retirement life. Even in retirement, you can continue earning rental income from your real estate investment or even sell the property for handsome gains. 

Pass Real Estate to Your Heirs

As inflation eats up the purchasing power of money, cash is often not the best idea to build a legacy you can pass down to your children. An investment like real estate is a far better option as you’ll be giving your heirs an asset that can produce income and whose value appreciates with time. 

They can keep the property and use it as their first or second home to continue the legacy, let it out on rent to supplement their income, or sell it off to generate profits. By purchasing real estate, you purchase financial security not just for yourself but for your family members too. 

Control and Tangibility

The control and tangibility offered by real estate are often not found in many other investments. For instance, investments like mutual funds, ETFs (Exchange Traded Funds), and stocks don’t provide any sort of control to the investors regarding their investment decisions. But with real estate, you have complete freedom to manage your investment the way you want. 

In other words, it allows for active asset management where you’re fully involved in the investment process and experience a greater sense of security. 

Real Estate Has Intrinsic Value

For an asset to have any intrinsic value (true monetary potential value), it needs to have cash flows. However, many investments like metals such as gold and silver don’t generate any income stream and have no intrinsic value when calculated with the popular DCF (Discounted Cash Flow) valuation method. The same is true for digital currencies or cryptocurrencies.  

But as real estate is an income-producing asset, it has an intrinsic value. This is one of the reasons why real estate is considered one of the most secure and reliable investment options.  

There Are Multiple Ways to Invest in Real Estate

Investing in real estate is also advantageous as there are many different ways to invest and generate profits from the investment. If purchasing the property and renting it out is not your thing, there are still many other ways to invest. For instance…

  • You can fix and flip the property by purchasing an undervalued property, fixing it, and selling it for a profit. 
  • House hacking is another option where you purchase 1-4 property units, reside in one, and let the others out on rent to earn rental income which can be used to repay the mortgage. 
  • Investing in REITs (Real Estate Investment Funds) is also a smart alternative to purchasing real estate and allows you to invest in income-producing commercial properties, like apartment buildings, offices, shopping centers, warehouses, etc. 

Common Real Estate Investment Questions Answered

Real Estate Investment Questions

Is real estate a good investment? As you can see, there are several significant reasons that make real estate one of the best investments. But as real estate is expensive and investing in a property is a big decision, it is always better to get clear answers to all your queries before investing. 

Here are some of the most common real estate investment questions with their answers-

1. How to Choose the Right Property for Real Estate Investment?

While there’s no magic formula that can help you find a property with maximum potential, here are some factors you should look into.

  • Choose a locality where property prices are appreciating fast or one that is popular among renters
  • Check the tax history, school ratings, and crime rate of the area
  • Ensure it has the basic convenience and amenities homeowners expect
  • Prefer type of property that is popular among local renters and other buyers, like a condo, townhouse, or single units
  • Compare the historical price of real estate in the area to the average of recently sold properties to get an understanding of how the price is appreciating

2. What are the Eligibility Criteria for Mortgage?

Most borrowers prefer applicants with a credit score of 620 and above. You should also have a stable income and a low debt-to-income ratio to get approved for the loan. If you meet these minimum requirements, you might qualify for a mortgage with a 5%-20% down payment. However, these eligibility requirements apply to securing owner-occupied properties. 

If you’re purchasing the property so that you can let it out on rent or plan to fix and flip it, the requirements are more stringent. You’ll need a higher credit score, a bigger down payment of up to 30%, and a lower debt-to-income ratio. 

3. Is A Primary Residence Considered a Real Estate Investment?

No, your primary residence is generally not considered an investment as you’re using it as your home. Purchasing real estate when you already have a home is considered a real estate investment. 

Nevertheless, you still have the option to sell your primary residence for a profit and pay the applicable taxes. 

15 reasons to invest in real estate

Ready to Invest in Real Estate?

Finding the right property and letting it out on rent or selling it, although profitable, is overall an exhausting process. Things can also get very confusing if you’re new to the world of real estate investments.

As a result, most investors work with a reputable real estate investment company. From finding discounted properties to qualifying and staging sellers and securing the deal, these experts are with you at every step to ensure the entire process is hassle-free, transparent, and time-efficient. If you are ready to invest in real estate, look for one such reliable service provider. 

Guest Post By: Liran Koren

Bio: I’m Liran Koren. I’m a real estate pro and co-founder of Luxury Property Care. I believe that through common work we can create a healthy ecosystem that serves investors, landlords and even tenants altogether.

Hey, I’m Melissa.

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