Although there are many options for investing, real estate investing is a favorite. There are at least 9 reasons why we should invest in properties and not in other types of investments:
1. The power of “leverage”
To invest in our properties we have the option of not using 100% of our money, but using someone else’s money (OPM). One of the most common sources is money that the bank lends. Depending on the country we are in, we can usually get a bank loan that ranges between 70% and 95%. In this case, we only need to spend the down payment of 5% to 30% of the property price. This also means that the leverage is roughly 3.3 to 20 times.
2. Relatively low risk
In general, investing in property is not like investing in the stock market, where prices in one day can go down and up significantly. Only in certain situations where the economy was bad can real estate investments be slightly affected. Compared to other types of investment, such as starting a business, saving money on deposits, or investing in stocks, real estate investing has a lower risk than these investments. If we look at risk versus income potential, the property is relatively low risk with good potential rental income and capital gains.
3. Two sources of income: rent and capital gains
Real estate investing offers a combination of rental income and capital gains. Investing in properties will not only give us a positive cash flow, but also the possible capital gains depend on the increase in the price of the property.
4. Full control to increase property value
If you have a property, you are in full control of how the property’s value will increase. There are many ways to increase the value of the property, from very simple things like painting the property. Other ways are to buy some accessories or cosmetics and renovations. These activities are very important especially when we want to rent or sell a property. Some people do small renovations to increase the property’s value so that owners can sell at much higher prices.
5. Long-term safe investment
Property prices tend not to fluctuate that much. In general, property prices can take some time to change over time. This is different from the stock market, for example, where prices can change dramatically overnight.
6. Protection against inflation
Unlike savings or deposit accounts where the interest is usually much lower than the inflation rate, property prices tend to at least follow the inflation rate. In this case, investing in properties is still a better option to protect them from inflation.
7. A good vehicle to achieve financial freedom
By using rental income to generate positive cash flow, it is possible to achieve financial independence after a few years depending on each person’s level of success in real estate investing. For example, if a person has income of $ 3,000 per month, that person can be financially free by making cash $ 3,000 per month with 5 properties and each property generates a positive cash flow of $ 600 per property per month. Consider it a small house or a townhouse, a rent of $ 600 would be very reasonable and quite conservative in this regard.
8. It can reduce the tax burden
You founded the business and buying property under the business name can save taxes. The rental property can be considered income tax and will generally only be applied after deduction of all expenses charged. Buying property on behalf of the company will be more profitable than buying on behalf of individuals.
9. Get rich through ownership
Real estate investing can make people truly wealthy. The key to real estate wealth is through capital gains. For example, someone is investing in an apartment priced at $ 500K with a down payment of $ 50K. Monthly rental of the property sufficient to pay the monthly bank fees, automatically, financed by a monthly bank rental fee. After 20 years, the property has been paid for in full and the price has appreciated, for example, to $ 1M (this is conservative, because property prices in general will triple or even quadruple in 20 years). In this case, the net return on the investment ($ 1M – $ 50K) = $ 950K. If this person has 3 apartments and a total net profit would be almost $ 3 million in 20 years. This guy really has become a millionaire in real estate investing.