Invest in Real Estate: Why Real Estate is a Good Investment?
Thinking of a good investment but don’t know where to invest? Then you have landed at the right place. From tax advantages to excellent returns to retirement savings, there are numerous reasons why one must invest in real estate. With well-chosen assets, real estate could be one of your best investment for life. We have penned down some of the perks and benefits that come with real estate investment.
Better returns with less volatility
In real estate, your risk of loss is minimised by the length of time you hold on to your property. As economies expand, the demand for real estate drives rents higher and this, in turn, translates into higher capital values, thus making real estate a good investment.
Unlike stocks, real estate offers more control of your investment because your property is a tangible asset that you can leverage to capitalise on numerous revenue streams, while enjoying capital appreciation.
Cash Flow and Wealth Creation
Over time, strategically selected real estate investments can be powerful vehicles for wealth creation. One of the key reason why real estate is a good investment is its ability to generate cash flow. In most such cases, cash flow only improves over time as you repay your loan and build up your equity.
People who invest in real estate can take advantage of numerous tax breaks and deductions. You can get tax deductions on loan interest, operating expenses and costs, property taxes, insurance and depreciation (even if the property gains value) and other benefits.
High tangible asset value
If you’re thinking, is real estate a good investment?, then always remember that real estate is not paper money. It is an asset you can hold tangibly making it more reliable and enhancing return on investment.
There will always be value in your land. Other investments like stocks or may be a car can leave you with little or no tangible asset value.
A Renewable Source of Capital
One of the other very strong reason why real estate is a good investment is the fact that it provides you with a renewable source of capital through re-financing options, as property values increase and mortgage financing decreases over time.
‘Should I invest in real estate?’ baffles many people. They aren’t able to distinguish between various available investment options. Investing in real estate is good because of its diversification potential. Ask any financial planner and they can tell you about the importance of diversification. When you diversify your portfolio, you spread out the risk. Real estate has low or negative relation with other major asset classes. This means the addition of real estate to a portfolio of diversified assets can lower portfolio volatility and provide a higher return per unit of risk.
Those who invest in real estate make money through rental income, any profits generated by property-dependent business activity, and appreciation. Property values increase over time, and with a good investment, you can turn a fortune when it's time to sell. Rents also tend to rise over time, which can lead to higher cash flow.
Real Estate Investment Trusts (REITs)
If you want to invest in real estate, but don’t want the baggage that comes with it like owning and managing properties, you can consider REIT. You can buy and sell publicly-traded REITs on major stock exchanges. Many trade under high volume, meaning you can get into and out of a position quickly.
The inflation hedging capability of real estate stems from the positive relationship between GDP growth and the demand for real estate. Property values have historically increased at a rate similar to the rate of inflation. This ensures your real or hard asset will help maintain your wealth and your standard of living.
Besides money and returns, there is another very important reason to invest in real estate and that is the typical ‘Indian’ thought of ‘settling down’. From the moment one completes academics and ventures out into business or service, there is this time-line stage which we term, ‘settling down’. Among the various aspects included in this stage is owning one’s own residential property. This is why home buying in our country is traditionally viewed as a ‘social security’ measure, which makes sense not just from a long term perspective, but is also seen as a ‘must’ once you choose to ‘settle down’.