The question I seek to answer in this article is “Is real estate a good investment?” I’ll explain in detail, but to get quickly to the point: First, real estate provides excellent cash flow. Second, real estate is less risky than many other investments. Third, real estate can be bought at a discount. Fourth, real estate provides tax benefits. Fifth, real estate can be leveraged. Sixth, real estate appreciates and grows in value.
1. Real Estate Provides Excellent Cash Flow
When you Buy Rental Properties, you can make sure that the mortgage that you pay plus all the other expenses are less than the rent that you charge someone to live there. The money left over at the end is called cash flow. Many people know the term “Cash is King”, but I believe the real king is cash flow. If you have a certain amount of cash, given enough time, it will disappear. But if you have positive cash flow every month, you’ll never be without. Every rental property I’ve ever bought, has had positive cash flow. I’ll probably never buy a property that doesn’t cash flow.
2. Real Estate Is Less Risky Than Many Other Investments
Has the Real Estate Market ever crashed and lost value? 2008 anyone? And that wasn’t the first time. Yes, real estate can lose it’s value and you can lose lots of money if that happens. The truth is however that the stock market crashed before the real estate market. At the same time, even when values drop in real estate, rents stay relatively steady. In real estate you can engineer how each transaction happens and there is so much flexibility that you’re able to control a vast portion of the outcome. In most other investments, this is not the case.
3. Real Estate Can Be Bought At A Discount
When you go out to buy your next house, do you think you should buy it at full price? No, of course not! This is a pretty basic thing in real estate investing. So much so that many people live by the theory that real estate should be bought somewhere between 60-70% of the actual value. Can you buy Apple stock at 60% of the current price? Can you buy gold at 60% of the price? No! Nearly all other investments require you to pay full price and wait for appreciation. Real estate on the other hand can be instantly purchased with equity built in.
4. Real Estate Provides Tax Benefits
The first time I filed my taxes after buying my first three rental properties, I received a tax deduction of about $6,000! This is because on paper, my real estate lost $6,000! How is this possible if in fact it is cash flow positive? It’s because there are many things that you can write off as deductions. You can also claim depreciation of the building. This is a phenomenal benefit of real estate.
5. Real Estate Can Be Leveraged
When you buy real estate, you can leverage the money you have and only put a down payment down on the house, rather than pay 100% upfront. Can you get a bank loan to buy Microsoft stocks? Can you get a bank loan to buy bonds? How about gold? No? I wonder why!! This goes back to the fact that real estate is less risky than those other investments. Banks lend based on what is the risk to reward ratios. Banks know that they can recover your real estate if you default on your loan. This is huge because having access to bank money allows you to have more purchasing power. If you have $1 million, you could buy 10 $1 million dollar houses by putting 10% down, rather than just 1 house that you buy for cash. This is obviously just an example, but it’s to prove the point.
6. Real Estate Appreciates And Grows In Value
This benefit is typically the only benefit that most other investments have. If you buy at the wrong time and the values crash, you could be left holding an investment for years before you get back to even. With real estate this is still true, but that is why this is the last benefit. If you’re a smart investor you will never buy real estate solely for appreciation. That is only a side benefit that is great if it happens. That being said, I encourage you to do a bit of research and see just how much money can be made simply from the appreciation of real estate.
To tie this all up in a pretty bow, it’s clear that yes, real estate is a good investment. That doesn’t mean you can’t still lose money, because you absolutely can. I suggest that before you jump in and blindly start buying real estate, you educate yourself and join a group of people who can support you along the way.