Benefits To Real Estate Investments

Government benefits (tax credits, tax deductions, rent vouchers, etc .). Real estate is the only investment that offers tax benefit/deductibility when you buy, hold and eventually sell the investment. Be aware that some tax benefits only apply when it is the owner’s principal residence. Investing in rental properties—both residential and commercial—can yield a variety of tax benefits. Your money can multiply, as you take advantage of all the tax breaks offered by the IRS. You do need some know-how, though, to help make your investment property pay off.

Strategic property management. Examples of strategic property management would be:

• Activities that would allow you to increase rent roll (rental income).
• Activities that would allow you to decrease tenant turnover/vacancies.
• Activities that would allow you to reduce operating expenses and increase net operating income.

Property appreciation. Historically speaking, real estate has proven to offer good appreciation rates over time—compounded with the concept of leveraged capital and equity, this makes real estate the clear winner in the long run.

Inflation. Rent is subject to inflation (inflation is nothing more than the tendency for expenses—the price of goods and services—to rise over time). For example, a current rent roll of $800 with a 5 percent rate of inflation would be worth $1,303 in 10 years.

Leveraged capital and equity. Leverage is the ability to borrow a percentage of the value of a piece of property. Real estate, in comparison to other investments, offers a very high degree of leverage. Up until recently, you could control a hard asset (real estate) with no money down—this can't be replicated on Wall Street. Even now, you can control a $100,000 real estate investment for $5,000-$10,000. In some cases, a couple buying a single-family home can obtain 95 percent financing. This allows individuals to purchase real estate with little, if any, of their own money. What other investments offer such a high degree of leverage?

The Law of Supply and Demand. Land is constantly being diminished (due to development and expansion) without being replaced—this fuels the “supply side” of the equation. Shelter is essential (everybody needs a place to live) and this fuels the “demand side” of the equation.

Investment real estate thrives in times of higher interest rates and/or when affordability is an issue—when people can’t afford to “own,” they must therefore “rent”.