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Why you should invest in real estate

Updated on March 28, 2016

Joy of land lord

Real Estate investment

WHY YOU SHOULD INVEST IN REAL ESTATE

The word real estate commonly we use for land, building and houses but it is divided in three broad categories such as residential estate, commercial estate and industrial estate. If you have money and want to invest somewhere but you have no experience in this field then I think investment in real estate is a good choice for you. Because this is the business which is protected and less risky as compare to others such as bonds or stock. Perhaps investment in stock market will give you more return but there is a lot of risk involve in that business because stock prices and dividends is not fixed it fluctuate day by day so there is also some possibility that you lose your money. On the other hand investment in bonds is very less risky and they will pay you a fixed return but due to inflation which is increase somehow 3.5 percent every year so it is possible that your fixed return value will decrease.

In contrast to these both investments real estate will not only pay you a fixed return but its value and rental income will also increase with the rate of inflation. Therefore many financial experts believe that investment in real estate is very profitable. There are five ways for earning through investment these are cash flow or rate of return, federal tax benefits, leverage of other people money, principal pay down and appreciation. However some of these benefits exist in other business but all of these exist in real estate only. In addition investment in real estate is an effective way for earning. But one thing you must remember that earning in real estate is a little passive while the big advantage is less risk. Furthermore I saw many real estate owners during my career whose enjoy their earning in this business.

Benefits of investment in real estate

Now I want to tell you about some financial benefits of investment in real estate. Investment in real estate has many benefits but unfortunately very few people know about it. Here I write down some common benefits of this investment.

Cash flow or rate of return

Many people like investment in real estate due to their stable and predictive cash flow. In this business you have opportunity to give your property on rent and earn money every month in the form of rental income. Perhaps there are also some expenses such as repair, taxes etc but that cost will not too high. In fact it is very essential for an investor to know the ways how to increase your cash flow overtime. There are some ways I wrote for your guidance through which you can increase your cash flow. These are continuously paid off the debt, increase your property rent and reduce your other expenses.


Amortization

In amortization the debtor pay some principal balance with interest overtime. One of the big advantages in real estate investment is that you can give your property on rent. Thus instead of you the tenant will pay amortization such as mortgage and interest amount. Although this process look a bit complicated but through amortization you can gradually pay off your debt easily. Rental property is similar to saving account that grows automatically.

Earn wealth in long term

One thing you must remember about investment. Any investment will give you gain when you think for long term. Obviously investment in real estate will give you earning in long term. For example if you hold a property for 20 years term so the tenant will pay off mortgage on behalf of you overtime. Perhaps during this time there is some issues come that require to deal but over all amortization is very important aspect through which you can earn wealth in real estate.

Depreciation and Tax benefits

Depreciation is the gradually decrease in the value of an asset due to wear and tear. Now days if you look around no one like to pay taxes. This is another benefit of real estate that government gives some relaxation in taxes its mean that they pay lower tax rate due to depreciation. Thus you can save a lot of money from taxes.

Appreciation

Appreciation is another benefit of investment in real estate because real estate prices increasing overtime. Although the prices of real estate change not so rapidly as compare to stock market but it increases gradually slowly. Here is also some factors that influence on appreciation such economic condition, location and age of home etc. However appreciation is very beneficial for real estate investors.

Protection against inflation

Inflation is a process in which prices of everything increases overtime. The main reason for inflation is decreasing in the value or purchasing power of money. But it doesn’t affect the real estate investors because your cash flow and value of home will also increase with inflation. However your fix rated mortgage payment will be not change.

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