Benefits of investing in Real Estate

Blog February 2024

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.

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Any questions

What is affordable housing?

Affordable housing refers to housing units designed to be accessible to low- and moderate-income families, typically costing no more than 30% of their gross income.

The definition of “affordable” typically varies depending on location and income levels but generally encompasses rent or purchase prices that don’t exceed a certain percentage of a household’s income.

What is Section 8 housing in the US?

Section 8 is a federal rental assistance program in the US run by the Department of Housing and Urban Development (HUD) that helps low-income families and individuals afford decent and safe housing in the private market. 

The program provides eligible households housing choice vouchers that cover a portion of the rent directly to the landlord, with the tenant paying the remaining amount. Property owners who participate in Section 8 agree to rent units to qualified individuals and families at a rate approved by the program.

How can I invest in Section 8 housing?

There are several ways to invest in Section 8 housing:

  1. Direct ownership: You can purchase a property approved for Section 8 and rent it to a qualified tenant using a voucher and receive rent subsidized by the government.
  2. Real estate investment trusts (REITs): REITs pool investor funds to purchase and manage income-producing real estate, including affordable housing.
  3. Limited partnerships: Limited Liability Companies (LLCs) offer another option for investors to pool resources and invest in affordable housing projects.
What is the difference between multi-family and single-family properties?

Single-family property: This refers to a standalone house or unit designed for and rented to one household.

Multi-family property: This refers to a property containing multiple dwelling units, such as a duplex, apartment building, or condominium complex. Multi-family properties offer the potential for higher rental income but typically require different management strategies and considerations compared to single-family homes.

What is the difference between buying and flipping houses?

Buying and holding: This involves purchasing a property to keep it as a long-term investment, generating rental income and potentially appreciating in value over time.

Flipping: This involves buying a property, renovating it to increase its value, and then selling it quickly for a profit. This is a more hands-on strategy with higher risks and rewards compared to buying and holding.

How much do I need to start investing in affordable housing real estate?

The minimum investment required varies depending on the chosen method. Direct ownership typically requires a higher initial investment for the property purchase, and renovation up to Section 8 standards, while other options like REITs might have lower minimum investment amounts.

Do I need to be a US citizen to invest and own the property?

No, US citizenship is not a mandatory requirement for investing in affordable housing in the US. However, specific restrictions or regulations might apply depending on the investment method and your residency status.

It’s crucial to consult with a professional to understand the legal and tax implications for non-citizens.

Do I need to pay US tax as an overseas investor?

This depends on the type of investment, your residency status, and any applicable tax treaties between your home country and the US.

Consulting with a tax professional specializing in international investments is highly recommended.