I am often asked if investing in real estate is actually a good investment. I am a true believer that it is, otherwise, I wouldn’t be investing most of my money into buying rental properties.
Investing in rental property has several long term benefits such as the following:
1. You Can Rehab Real Estate and Increase Its Value (Forced Appreciation)
After purchasing a stock, you keep it for a specified period, interest compounds, and then sell it at a profit. The stock’s success is contingent upon the company’s management and organizational success, all of which are beyond your control.
Unlike other traditional investment vehicles, such as bonds, where the rate of return is determined by third parties (for example, the company’s management), real estate investments are entirely under your control.
Although you cannot control the demographic and economic trends or the effects of natural disasters, there are several other factors that you can control to increase the returns on your investment.
Examples include aspects related to the addition of renovations or improvements/enhancements to the physical property and the tenants you permit to use. These are called value-add investments.
If you invest wisely, the value of your investment will increase, increasing your wealth. It may not have immediate benefits, but long term, it will be very profitable.
2. Real Estate Investments Can Hedge Against Inflation
In other words, investing in viable real estate will shield you from the harsh effects of inflation on other types of investments.
This is because real estate values usually increase in lockstep with inflationary pressures. This is why property prices and rental rates go up with increasing inflation.
As a result of the economics of real estate, owners have the unique benefit of changing their prices to keep pace with inflation.
Monthly rents, for example, can be increased to account for inflation, providing a buffer against the inflation-induced losses suffered by other monetary investments.
3. Real Estate Investing Enables the Use of Other People’s Funds
You can invest in real estate without money. This is how we have acquired all of our properties.
Real estate is a physical asset, or what is referred to as a hard asset. That is one of the characteristics that make it appealing to financiers or individuals with capital to invest.
This is why real estate goods are often purchased with debt, in contrast to traditional investment products such as bonds, which are NOT tangible and therefore considered riskier.
Thus, real estate investing can be accomplished by either cash or mortgage financing. Payments may be structured in the above case to allow for the payment of small initial amounts paid by you or a willing third party.
It will make such payments on landed property that will continue to appreciate over the term of the payments – and possibly beyond. This instills trust in those funding the purchase, ensuring that their investment is secure
Don’t forget to check out our detailed posts where we breakdown our individual investments to learn how we leverage debt to invest and build wealth.