Real Estate Investing offers tangible assets, positive cash flow, tax benefits, a high probability of asset appreciation and a hedge against inflation. This type of investment falls under a broad category of purchasing, operating, management, rental and/or sale of real estate for profit. Often the intended result is to generate steady cash flow from a tenant or to resell for a profit. “Media often refers to the real estate market from the perspective of residential living, however, real estate can be grouped into three broad categories based on its use: residential, commercial and industrial. Examples of residential real estate include undeveloped land, houses, condominiums, and townhomes; examples of commercial real estate are office buildings, warehouses, and retail store buildings; and examples of industrial real estate are factories, mines, and farms.” - investopedia.com Regardless of the property type, the investor/landlord enters into a rental agreement or lease contract with a tenant that includes terms, length of time, certain restrictions, many of which are determined by federal, state or local law.
The real estate market is considered red-hot again after many years of recovery from the subprime mortgage meltdown in 2007/08. A recent article in Forbes, “Best Buy Cities: Where to Invest in Housing in 2017” listed the top ten places to buy when balancing risk and reward in real estate. Orlando, Jacksonville and West Palm Beach were included in the top five along with Seattle, WA and Dallas, TX. High-profile megacities may garner the most attention in the news and entertainment world, however, midsized and small cities are where most of the population live, work and play. Population growth is slowing down in many of the global gateway cities and swelling in surprising places. In “5 Heated Trends Driving the Commercial Property Marketplace in 2017”; MyCompanyTrader noted the purchasing power of millennials (generation making up 44% of the job market) and how they are changing the landscape, demographics and industries of cities. Zillow reports that half of first-time home buyers in the United States are under 36 (compared with the median age of around 33 from 1995–2009), and first-time buyers make up 47 percent of all property sales. Last year, millennials became the largest generation of Americans and research from Fannie Mae reported that 85% of millennials think real estate is a good investment. It makes sense that millennials and all generations like the idea of being invested in income producing real estate that offer a diverse amount of benefits.
5 Key Reasons to Invest in Real Estate
Income-producing real estate is a hard asset with meaningful value that is perceptible which can bring peace of mind. Pricing is not updated daily by the media as are stocks, bonds and currencies. The land, the structure (whether residential or commercial) and the income stream it produces all have value that does not usually fluctuate in short-term intervals.
2)Positive Cash Flow
Leases generally secure the assets with legalities built into the agreement and is one of the top advantages to income producing real estate investments. This allows the investor/landlord to utilize what is termed “positive leverage” where the investor can borrow money at a lower cost than the property pays out with the opportunities to then reinvest or diversify into other financial opportunities.
3)Asset Value Appreciation
Income producing real estate investments have historically provided appreciation in value and allow for unlimited opportunities to make improvements that further appreciate the monetary worth of the property. CNBC reported that “2017 looks set to be a banner year for the renovations market, thanks to rising home prices and millennials eager to improve their first homes.”
Costs associated with mortgage interest, property tax, operating expenses, depreciation and repairs are often available for investors in the form of deductions. As a property manager or landlord, additional deductions could include advertising, utilities, insurance and maintenance. For investors living in and running a business from one of their properties brings an additional host of tax benefits by being able to deduct a portion of home working expenses.
5)Hedge against inflation
Owning income producing real estate is considered a strong hedge against inflation. When currencies have less purchasing power along with a rise in goods and services, inflation occurs and this tends to drive real estate rents higher translating into increasing capital values. Real estate investments have historically shown the highest correlation to inflation when compared against other asset types including stocks and bonds.
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