In one of my most recent posts, I mentioned that real estate is the best source of passive income. If you have not read my “Top 10 Sources of Passive Income” post I recommend doing so.
Real Estate remains a favorite of mine as well as wealthy people because of the variety of advantages and protections it offers. Here are the 5 main reasons why Real Estate is wonderful!
5. You Have Control
Have you ever noticed that you do not have full control over your stocks and bonds? The stock and bond owner has limited control over his or her investment portfolio investments. A Smart Investor would aim to have control over his or her investment.
In Real Estate, the landlord has almost complete control over his or her investment. The landlord must make sure everything is running smoothly to achieve the best comes out of the investment. The landlord is responsible for seeing a great return in the near future.
Although being a real estate investor is much work, can’t you say that about life anyways? Hard Work Pays Off! Stock owners have very limited control over their investments. All they have is usually a computer to look at and some news stories. Work hard now and soon you can relax and take those vacations to your private island in your private jet.
4. Real Estate Appreciates in Value
One of the reasons why investors love real estate is because homes increase in value over time. Although real estate hit one of the worse bubbles in history, real estate still remains relatively steady in terms of increasing their value. According to the US Census, real estate has increased at an annual rate of about 5.4% from 1963 to 2008.
Appreciation increases over time because of inflation, supply and demand, and capital improvements. Every year the government prints more dollars which adds more circulated currency, thus increasing prices. Furthermore, every person in the world needs a roof over their head! There is always going to be a demand for housing. Lastly, the landlord gets to be creative and improve the value of his or her property through capital improvements. You can paint the house a different color, add a fence, landscape, put wood floors in the house, or anything that you want. The sky is the limit. Talk about control! But always remember to obey the legal rules of what you can and can’t do, but other than that, creativity is on your side.
3. Tax Advantages
You want to know why the rich are getting richer. They create the rules!
The people who have the money get to create the rules so they are able to make loopholes for themselves. Talk about more control!
Real Estate offers numerous tax advantages. And when I mean numerous I mean numerous.
- If a landlord pays mortgage interest payments on loans that are used to acquire or improve rental property, taxes can be deducted.
- Over the course of many years, houses wear and tear. This is also known as depreciation. This is another popular tax advantage.
- Necessary repairs on a house are fully deductible within the year they occur.
- Local travel that deals with your properties can be deducted. This includes helping a tenant, going to a hardware store, etc. Here you can deduct taxes from gasoline. I would even want cheaper gas!
- Whenever you hire someone to perform a service on your rental property, you can deduct their wages as a rental business expense.
- If you are wanting to avoid a capital gains tax and want to buy another real estate property, why not use a 1031 tax exchange! You can avoid thousands of dollars in taxes every time you upgrade in properties.
See, there are numerous tax advantages in real estate. And this is only a small list of the many other tax deductions real estate gives you!
You would think it was foolish if someone went to the bank and asked to take out a loan to buy some stock. But not for real estate! With real estate you are not required to put down the entire value of the house. In a most common example, most of the time you are required to put a deposit of about 20% of the house value.
Take for example a $100,000 house. You put $20,000 down (20%) and you borrow from the bank or a private lender the remaining $80,000 (80%). If the house increases in value of about 5%, the house now has a value of $105,000. If you paid for the entire house, you would have only had a 5% ROI. However, since you only put down 20%, your ROI is actually 25% because of your initial investment. Not only that, you can include your monthly cash flow to your annual value. Talk about a great return!
1. Cash (Flow) is King
After you have collected the rent and all your expenses have been paid, what is left becomes your cash flow. Cash flow is another word for passive income. It just keeps coming in even when you are sick and can’t be there!
Compared to stocks and bonds that only offer quarterly and semi-annual cash flow payments, real estate cash flow comes in monthly. Investors want to see quicker returns on their investments. Monthly cash flow is wonderful for people who want to live a financially free life. That is why so many wealthy people own real estate! According to the Federal Reserve Bank data, the top 10% of wealthy Americans own about 81.8% of all the real estate in the nation. Cash Flow is King!
As you can see, real estate comes with many wonderful advantages and protections. Personally, I do not own real estate at the moment, but I do plan on becoming a multi-unit residential property owner.
Do you own any real estate or are planning on becoming a real estate investor. Let me know what you are doing!