Wealth building, portfolio diversification, and long-term passive income
Have you ever wondered how real estate investors become so successful and wealthy? What is the key factor that makes real estate such a beneficial investment? Keep on reading to discover why real investing is a good idea!
Benefits of Real Estate investing
Why should all investors take properties into serious consideration? Why pay special attention to this specific asset class? Well, real estate investing is a good idea due to various factors, regardless of your overall investment record. If you’re just starting to invest, you may want to consider this asset type as it is one of the most reliable asset classes in the market. If you’re already an experienced investor and want to venture into something new, it can be a good idea to diversify your portfolio with properties. Properties as an asset class can also help you maximize wealth and receive substantial passive income, tax benefits, as well as protection against inflation. Let’s dive into each and see why exactly you should seriously consider investing in properties.
Building and maximizing wealth
There are numerous paths to building and maximizing wealth through real estate investments. While all methods of real estate investment can help increase wealth, one method of achieving this directly is buying and selling, also known as fix-and-flip. Fix-and-flip is a short-term strategy where an investor purchases a distressed property, refurbishes it and flips it for a higher price. These are examples of relatively fast investments which help you maximize returns in an accelerated way. The downside is that the returns from this method are not strikingly high due to the initial price being relatively low. But the return margins can still be high and if you invest in numerous properties, you will see significant numbers.
Another way of maximizing wealth through real estate investments is using leverage. Leverage essentially utilizes borrowed capital or debt in order to maximize returns. Using leverage to increase returns in real estate investing is most commonly done either via your own money or a mortgage. It’s best when property values are rising and can lead to losses if values decline. It’s a valid form of investing, however, the very foundation of real estate investments and what makes them such an attractive asset class is appreciation which is the gradual price increase of a property over time.
Building wealth through real estate appreciation is the most foundational type of real estate investment. This method relies purely on the market trends of supply and demand. Appreciation is one of the key factors that make properties such a reliable asset class. The necessity of shelter encourages demand, and it’s pushed even further by a constantly growing population. This, in its turn, guarantees appreciation in the value of properties in the long run. These key factors are the basis of real estate investment as a powerful source of returns for serious investors.
Steady passive income
Investment in properties can be a source of steady passive income, which is a major upside to many investors and business owners, as well as providing financial freedom and planning for retirement. The best way of generating passive income through real estate investing is renting out, which is a long-term strategy. Generating passive income through rental properties can be incredibly beneficial – it will allow for an increased income without much time spent on it. This is a perfect source of secondary income to fall back on for investors as well as other business owners.
Real estate investments as a long-term strategy have some downsides as well – investors don’t get instant significant returns through rental properties. So, if you’re looking for fast results, this may not be the best option for you. However, playing the long game has its indisputable advantages. As mentioned above, real estate investments as a long-term strategy have the added advantage of being a perfect fit for retirement planning. If the management of the asset is set up correctly, it can run with almost no intervention, bringing you a significant income with almost no effort.
Diversifying your investment portfolio
Portfolio diversification is an important part of professional investing. As many experienced investors may have heard, it’s all about not putting every one of your eggs in one basket. Investors of all backgrounds and all levels of experience could benefit from diversification. Diversifying your investment portfolio with real estate is especially useful due to its solid and tangible nature, in addition to its necessity and usefulness. While it may not be as liquid as some other assets, it’s a hard asset class that signifies a solid value in the market. Even in times of economic downturns, properties can’t lose their value completely. The value may go down, but it always comes up again.
Diversifying your investment portfolio with real estate is an incredibly reliable path. As a long-term diversification strategy, it will be a reliable asset to fall back on if other markets crash or a risky investment doesn’t pay off. Diversification through hard assets like properties is a wise strategy for any investor, but due to the wide array of challenges associated with this type of investment, it can be best to relegate. You can opt to invest with entities like trusts, groups, or equities. We recommend equities, such as GCG Real Estate due to their tax-optimized structure.
Tax benefits
Another important advantage is the tax benefits of real estate investments, especially in countries such as the United States. In many locations, numerous expenses associated with owning investment properties are tax deductible. You can get tax benefits in costs associated with property taxes, ongoing main, property insurance, and repair costs. It can go as far as your gains – if you’re reselling the property the gains received will be taxed as capital gains, not income. Capital gains are usually taxed at a significantly lower rate than income taxes, which ends up maximizing returns on your real estate investments.
Inflation hedge
The stability of real estate investments during economic downturns makes for a powerful inflation hedge for any investor. Protection from inflation is virtual during economic downturns, and the stability of hard assets plays a key role in times of crisis. When it comes down to how real estate investments protect against inflation, the answer is the rise of property prices during economic downturns. Additionally, a long-term strategy such as a rental property can also be a powerful inflation hedge as it provides a source of income even during economic downturns.
Real Estate investing for financial freedom
Now that we’ve seen how beneficial real estate investing can be for building wealth, gaining financial freedom, maximizing returns, diversifying your portfolio, and protecting you from inflation, you may want to think of how exactly you can achieve this.
