7 Reasons Why You Need To Invest In Real Estate

1. 7 Reasons Why You Need To Invest In Real Estate If you experienced the recent great real estate and economy recessions, then you will answer the question posed by this headline with a bold NO. Just ten years ago, the entire world economy was swept with an economic crisis that is unrivaled by the ones that this current generation has ever known.

2. Introduction • If you focus on some of the great recessions in this industry, you will shy away from investing your money and time in trying to grow your financial status through real estate. If you survey this market through the lens of some of its off-pick periods, you will likely miss the opportunity to understand the position of this industry in sustaining the world economy. Worse still, you will fail to see the opportunity that is readily present in this industry for you. It is important to develop an understanding of this industry before you write it off for whatever reason. For Latest Financial News, visit Smart Money Gains. • Here are some of the reasons for you to believe that real estate builds wealth more consistently than other assets you may think of.

3. Cash Flow • Cash flow is defined by the difference between your income and expenses. If you own an apartment, then the rent minus all the expenses will give you cash flow. If that difference is positive then you have a positive cash flow, if it is negative then you have a negative cash flow. This term can be loosely interpreted as net profit. Most real estate properties have expenses such as maintenance, property management fees, insurance, mortgage, and property taxes. When your property is pulling in more rent than all these expenses then you have a positive revenue (net profit).

4. Appreciation • Appreciation is the main principle upon which most of the wealth is built in real estate. Though prices fluctuate, over the long run, real estate values are always rising. You have heard of the common saying that land (as an asset) is always increasing in value. The simplest way to view this is that as the world’s population is increasing, we need more space to stay and set up our businesses. Thus, the demand for land is ever increasing. As a result, the value is always in an uptrend. And, there is no reason to think that this trend will change.

5. Leverage • Real estate is the easiest business to leverage. A real estate investor has a high bargaining power than all the investors in other industries when they are making a deal with banks for a loan. For example, it is normal for a real estate investor to get the following loan conditions from a bank institution: interest rates below 5%, less than 20% down payment, and over a 30-year period of loan amortization. There is no other industry you can invest in using financing with such terms. With proper planning, you can buy real estate properties, improve their values and refinance to recover 100% (or even more) of the capital you invested. You can use Buy-Rehab-Rent-Finance-Repeat (BRRFR) model to achieve this. You should not take leverage for granted when investing in the real estate since it can make a big difference in your cash flow.

6. Loan Pay Down • When you use a loan to buy the properties, the tenants will service that loan and you will keep the difference. This means that, as an investor, you are not only “cash flowing” but you are slowly paying down your loan balance with each payment to the bank. • Initially, a larger portion of this payment will be going towards the interest of the loan. After sometimes most of the payment will start going to the principle. After a long time of loan service, a good portion of every payment comes off the loan balance. Then, you start building wealth on top of the cash flow. Paying your loan can grow your wealth passively in real estate.

7. Forced Equity • This involves creating wealth buy working to improve the quality of the property. This is different from the appreciation since you do not entirely rely on the general market trend. Instead, you will have a hand on deciding where to improve the value of your property. One of the most common methods of forced equity is buying a fixer-upper type of property and improving its condition. Here, you will pay below the market for a property in a “poor condition” upgrade it (you can furnish the room, apply paint to the house, improve flooring and tiling, etc.) and sell at a higher price. This is a less risky way of making money in real estate.

8. Depreciation • This term may paint a negative impression, but it actually describes a positive situation in real estate investment. Depreciation, as used here, does not mean the value real estate dropping. It is a tax term that describes the investor’s ability to write off part of the value of the asset every year, thus significantly reducing the tax burden on the money the investor is making from the product. Depreciation protects your wealth in real estate business. For example, you can write off 3.64% of the properties value against the income you have generated. That means for a house bought at $500,000 you can write off $18181.818 from the cash flow you earn from that property at the end of that business year. There are more to learn from this tax benefit but that is the basic idea.

9. Inflation • This is another bad term for the rest of the business world but a good term to the real estate industry. Inflation has benefits to the real estate investor. Basically, inflation means that the value of the money in circulation is reducing with each passing year. As the value of money decrease, the prices of products increase since the value of the products to the human need remains constant. For instance, quarter bucks could do much more 30 years ago than half a buck today. In real estate, the value of your huge expenses such as property taxes and mortgages remain fixed while for quite a long time while the value of money is constantly being reduced. When you combine this advantage with the rising rents and home values, due to inflation, you start to see the good aspect of inflation in building wealth. While inflation is likely to continue (judging from the past trend) it is upon you to invest in real estate and see its positive side.

10. In Conclusion • Most people shy away from a real estate out of ignorance. However, with a proper understanding of how the industry runs, you will clearly see numerous opportunities that you can never find in any other industry. However, before you invest your money in this industry, invest your time and learn its principles and you will need no one to convince you to invest your money in this industry to build your fortune. For Latest Stock Market News, visit Smart Money Gains.