There is always a reason behind someone starting their real estate investment journey. The reason for me was retirement. I knew I wanted my retirement income to come from different places (be diversified) and I just simply wanted more income than what my 401k was projected to provide. While that is still one of my motivating factors, I’ve discovered even more reasons why I want to continue to invest in real estate. I’ve summarized some of my favorite reasons for you below.
Builds Wealth
Most residential home loans in the U.S. are amortizing. This means that with every monthly payment, your loan balance goes down. If you look at the historical trend of how properties appreciate, then you’ll see that they reliably appreciate over time. As your property becomes worth more, and as you owe less and less, this builds your equity in your property and thus your net worth. Once you have equity you can either access it with a home equity product to invest in other income-producing assets, or you can sell the home for a profit.
Diversifies Retirement Plan
When you invest in different asset classes, then you’re exposed to different types of risks. If you use 2022 as an example, it was a bad year for the stock market but a great year for home price appreciation. This becomes even more important during retirement years. You want to protect your nest egg by making sure you maximize your growth potential while minimizing risk by diversifying your portfolio.
Creates Passive Income
You only have so many hours in a day to devote to earning money. When you have a rent check showing up every month, with little investment of your time, it provides income and freedom. Once your property is paid off (ideally before entering retirement) your profit on the property grows and creates a solid income stream throughout your retirement years.
If you invest in short-term rentals then you have the added perk of being able to use them as a vacation home! You own a home, that someone else pays for, that you can enjoy whenever you want. Sign me up!
Tax Advantages
This is possibly my favorite property perk. When you own rental property, a majority of your expenses are tax deductible. There are also ways to structure your investments to realize even more major tax breaks. This reduces the amount of taxes you have to pay Uncle Sam. Tax benefits are one of the primary driving factors in my continued investment in real estate. I highly recommend working with a CPA who specializes in real estate once you begin your property-investment journey.
Inflation Hedge
Inflation is a decrease in the purchasing power of a dollar. The higher inflation goes, the more purchasing power you lose, even as you save more money. If you buy a property with a fixed-rate mortgage, your monthly payment is based on the value of the dollar at the time you purchase. As you make payments throughout your loan term, you’re paying with “cheaper dollars” as inflation rises. Wages typically rise over the years, so a fixed mortgage payment feels like less of a financial burden as wages go up. If you own investment property, as inflation goes up the easier it feels to make your mortgage payment and the more you’re earning in rental income.
Bankable Asset
Real estate is a bankable asset which means you can leverage it to expand your investments. You can borrower against it to make improvements to increase your income, or you can borrow against it to invest in other income-producing assets.
