The Ultimate Guide to Understanding the Benefits of Real Estate Investing

Real Estate Agent Giving House Keys

To some people, owning a property might be a symbol of prestige, but to others, it might seem a daunting affair. While it certainly takes effort to invest in real estate, it brings a bunch of benefits.

If you are in a fix on whether to buy a home, or wondering why real estate is a good investment, check out the benefits of real estate investing to know the answers to your queries.

Passive Income

Real estate is a good investment that offers multiple benefits, and the best advantage is the passive income that it brings. All that’s needed is to find a suitable tenant and let your property earn rent. Earning rent, move-in fees, etc. regularly offers great passive income.

That’s why most people prefer investing by buying a home, even though they may be residing elsewhere. The rent that it fetches can help you meet other expenditures. Alternatively, you could put earnings in a savings deposit for a rainy day.

Price appreciation

Land, housing, or any real estate property for that matter experiences an appreciation in its value over time. If you buy a house today and let it out on rent for just a few years, you can later quote a much higher asking price while selling it off, which would reap you good profits as this price is higher than what you originally purchased it for.

Long-term Security

It’s undeniable that property offers a long-term security option to the owners. In a dynamic real estate market of ever-fluctuating prices, it is a smart move to invest earlier by buying a property and enjoying the profits by way of rent when the market is weak. While becoming a landlord might seem daunting initially, once you learn the ropes of the trade, it can fetch you a lot of benefits.

Besides, these days there are various tools like property management software that help maintain all information relevant to your property and can let you have a hassle-free and rewarding experience with your tenant by making renting easier for both of you. Alternatively, you may consider hiring a property manager, which might

be a little costlier.

Diversifying your portfolio

You may have an investment portfolio with various assets, however, some might be too risky. This is why real estate is a good investment, as it offers higher yet stable returns as rental income. If your other assets are relatively volatile, you can rely on the real estate returns until your other assets stabilize.

Mostly, as a landlord, you would be renting out your property for a minimum period of 12 months. So, that gives you ample time to earn an income while the riskier assets attain some maturity.

Combating Inflation

All economies undergo a period of inflation, which means a rise in the prices of consumer goods and services, at some point in time. While you cannot avoid the impact of inflation completely, at least you have ways to sustain yourself during such periods. One such strategy is to invest in real estate as there will always be someone looking for the rent and your property can fetch a good income.

Moreso, during a crisis, you can charge slightly more rent and reap higher profits. Inflation certainly justifies why real estate is a good investment.

Tax Benefits

Most governments offer various tax benefits for people buying land or buildings based on their rental income etc. and these are reaped as deductions from tax liability. Some of these include:

Deduction for Mortgage Interest:

An example of tax deduction with regard to buying a home for investment is that, if you borrowed a mortgage loan towards purchasing or improvising a property, you can obtain an interest deduction. The amount of deduction that you are eligible for depends on your total annual income generated through the rental returns calculated according to the Tax Act.

Deduction for Depreciation:

As you may be aware, property is associated with depreciation charges over time, the cost involved in purchasing or renovating a property can be depreciated over its useful life. This depreciation is entitled to a deduction. While the useful life varies across properties, residential properties are considered to have a useful life of 27.5 years and commercial buildings tend to have 39 years.

Deduction for maintenance:

When you own a property – house, commercial, etc., it undergoes wear and tear over time. This requires you to shell out money for maintenance and repairs. This could be anything from repainting walls, fixing leaking taps, or replacing broken window panes. Such maintenance charges may be applicable for the deduction.

In addition, there are some other tax benefits that you may be eligible to reap as a landlord of a property. In essence, there is a significant amount that you can enjoy as tax advantages which is why real estate is a good investment.

Home Equity

One of the remarkable benefits of buying a home for investment is you can create home equity by paying your mortgage. This home equity helps you buy additional properties in the future, besides adding to your net worth. In addition, the major advantage is that it offers a great chance to increase your property investment portfolio while you don’t need to borrow another home loan or find ways to finance it.

Starting with low capital

While investing in land or buildings might appear overwhelming, in reality, you can get started with relatively low capital. Various crowdfunding sites enable you to invest in property that could reap good profits, by bringing several investors together on a single platform. Furthermore, these sites help you diversify your real estate portfolio by purchasing shares in multiple property investment trusts and other deals. The greatest benefit of this is you don’t need to play the role of a property manager while you still manage to make a good passive income.

Leverage Benefits

Yet another noteworthy benefit of buying a home for investment is – leverage. Leverage refers to the use of borrowed capital to buy a new property or enhance the return on investment. This concept has long been used as one of the profitable applications of mitigating risks in investing in land or a house. Through a well-planned strategy, leverage philosophy could help you multiply your wealth, particularly in a low-interest rate market.

FAQs

Does owning a land or building offer me any security?

Certainly, long-term security is one of the key benefits that buying a home or owning land offers. This is achieved from multiple perspectives. First, the property market is always experiencing ups and downs in prices. That said, if you own a house, you can always earn some rental income by investing earlier and reaping the profits during the time when the market is relatively weak.

Second, inflation, or the rise in prices of consumer goods in an economy at some point is not within your control. However, by owning a house, you enjoy the rental income during such difficult economic situations. Finally, by buying a home or land, you can diversify your investment portfolio and while your other assets might pose risks, rental income could generate good yet stable returns.

Do I enjoy any tax advantages by investing in real estate?

Of course, most real estate investors are eligible for various deductions though the amount of deduction depends on the total income earned annually from rental sources in accordance with the tax act and laws. Some of the examples include a mortgage interest deduction, a deduction for repair costs, and a deduction for depreciation.

Does buying a home or land call for huge capital?

Certainly not. As a matter of fact, investing in buying a home or plot is possible with relatively lower capital. There are various crowdfunding sites that allow you to invest in the most lucrative home projects by collaborating with investors.