Real estate is still considered the best long-term investment

With all the headlines circulating about house prices and rising mortgage rates, you may be wondering whether it still makes sense to invest in home ownership right now.

The recent Gallup poll shows that the answer is yes.

In fact, real estate has been voted the best long-term investment for the 11th year running, consistently outperforming other types of investment such as gold, shares and bonds (see chart above):

36% of Americans chose real estate as the best long-term investment

If you're thinking of buying a house, let this poll reassure you. Even with everything going on today, Americans recognize that owning a home is a powerful financial decision.

8 reasons why real estate is a good investment

Diversifying your investment portfolio is essential. If you put all your eggs in one basket, you could suffer a total loss in the blink of an eye. But when you invest some funds in the stock market, other funds in bonds or ETFs, and some in real estate, you increase your chances of bigger gains and fewer losses.

Many people avoid real estate investments because they find them scary or because they need a lot of money to invest. Neither is accurate and, to reassure you, here are eight excellent reasons why real estate is a good investment.

The main reasons why real estate is a good investment

If you're thinking of investing in real estate, you're about to embark on one of the the best investment days of your life. Here are the main reasons why you should consider it, even if you've never invested in real estate before.

You can leverage your investment

There aren't many other investments that allow you to invest in assets that are worth much more than you need to invest. For example, if you have US$ 10,000 to invest in the stock market, you can normally only buy US$ 10,000 in shares. The exception is if you invest on margin (borrow), but you must be an accredited investor with high net worth for this to happen.

With real estate, you can reduce a fraction of the cost of the house and invest in it. For example, let's say you found a house for US$ 100,000; if you invest US$ 30,000, you'll probably be able to find a loan to finance the rest, provided you have good credit and a stable income.

This means that you only invest 30% of the value of the asset and you own it. Then, over the years, as you pay off the mortgage, you will retain a larger part of the investment, increasing your rate of return not only with the mortgage payment, but also with the natural appreciation of real estate experiences.

You can force appreciation

Unlike shares or bonds, you can force the property to increase in value. It sounds strange, but it's possible.

First of all, real estate appreciates naturally. On average, properties appreciate by 3% to 5% a year without you doing anything other than maintaining the house. However, you can increase the rate of appreciation by making renovations or repairs.

Not all renovations increase the value of a home, so if you're renovating to increase its value, work with a licensed appraiser or real estate agent to find out the best (most valuable) renovations you should make.

You won't get a dollar-for-dollar return on your investments, but some reforms can refund up to 80% - 90% of the money invested.

Renovations don't have to be major either. Of course, adding a room or finishing the basement will add more value than simple cosmetic renovations, but even small renovations to the kitchen and bathroom can drastically affect the value of a house.

You'll get tax benefits

Like any entrepreneur, real estate investors can take advantage of many tax breaks. But although it's an investment, when you own a house and rent it out, you're running a business - you're the landlord.

As a business owner, you can often write off the following expenses:

• The mortgage interest paid on the loan
• Origination points paid on the loan
• Maintenance costs
• Depreciation (spread over 27.5 years)
• Property taxes, home insurance and HOA fees

Always talk to your tax advisor before assuming that you can write off expenses, but know that investing in real estate is a benefit. When investing in stocks or bonds, you can only write off any capital losses if you sell the asset for less than you paid for it.

You can earn regular cash flow

If you buy and maintain a property, you can earn monthly cash flow by renting it out, and this increases the profits of owning a property, since you don't just depend on appreciation, but on monthly rental income.

It may seem difficult to buy investment property, find quality tenants and manage the property, but there are many resources available to help you.

Of course, there is always the risk of tenants defaulting or vacating early, but there is a risk in every investment. Without risk, there can be no reward.

A good administrator can help you avoid or reduce these risks.

You can feel financially secure

There's not much to feel safe about when you invest in the market. But, as 2020 showed, that can change in the blink of an eye. One minute you have a significant investment and the next minute you lose everything.

When you invest in real estate for the long term, you know you have an appreciating asset. It may go through hills and valleys, losing some value along the way, but housing usually recovers if you hold on to it long enough.

Many people invest in real estate to supplement their retirement income. Whether you own the property while you are retired, earning the cash flow from the monthly rent to supplement your income, or sell a property you have owned for many years when you are retired and make a profit, you will increase your retirement income.

Some people feel more secure knowing that their money is invested in a safe investment (real estate) rather than leaving it liquid in a cash account or investing it in the stock market.

There are many ways to invest in real estate

If buying a property and renting it out is too stressful for you, there are many other ways to invest in real estate, including:

• Buy an undervalued property, fix it up and then sell it (flipping)
• Use house hacking, which means you buy a property of 1 to 4 units, live in one unit and rent out the others using the cash flow from the rent to cover your mortgage.
• Invest with friends

You can pass on real estate to your heirs

If you want to leave a legacy behind, but don't think making money is a good idea, passing on real estate could be even better.

Not only will you give your heirs an income-generating asset, but also an asset that will appreciate in value. This way, they can keep the property and let the legacy continue or sell it and make a profit.

You can use equity to increase your real estate portfolio

A preferred way to use the equity in an investment property is to increase your real estate portfolio. For example, let's say you have an equity of $ 50,000 in a house. You could refinance the mortgage, withdraw the $ 50,000 and use it as a down payment on your next property.

Depending on the value of your properties, you could even pay cash for future properties, further increasing your portfolio and the equity in it.

What makes a property a good real estate investment?

Everyone wants the magic answer - they want to know which property is best to invest in to make the most money. Although there is no single answer, there are specific attributes to look out for when you invest in real estate, including:

• Look for an area that is attractive to renters or with rapidly appreciating homes.
• Make sure the area has all the amenities and conveniences that most homeowners want
• Look at the area's crime rate, school grades and tax history.
• Invest in the homes that renters want in the area (1 unit, townhouse, condominium, etc.)
• Pay attention to the prices of recently sold homes to see the average selling price today and its comparison with historical prices.

What are the disadvantages of investing in real estate?

Like any investment, there are pros and cons to investing in real estate. Understanding the "downsides" can help you make the right choice. You may find that you still want to invest, but knowing the downsides can help you make smarter choices and protect yourself.

No guarantee

Like any investment, there is no guarantee that a property will appreciate in value or that you will make a profit. Many factors determine what happens, including the state of the economy, the demand for housing at a given time and local events or occurrences.

However, like most investments, real estate almost always bounces back. So if you're in it for the long haul, you should be well on your way to making a profit.

Working as a landlord is time-consuming and exhausting

You have to be a specific type of person to deal with being a landlord. For example, if you buy and maintain a property, you'll want to rent it out to make money. But if being a landlord is too much for you, consider hiring a property manager.

Cash flow is not guaranteed

There is no guarantee that you will always have tenants. If your tenant pays the deposit, the mortgage and expenses will fall on your shoulders. If you have a mortgage, you must continue to pay it, even if you are not receiving rent at the moment.

You need a solid emergency fund and financial stability to deal with any situation that may come your way.

Summary

Did you like the article? Keep an eye on our blog! Looking to live or invest in real estate in Florida? Check out the list of houses for sale in Florida that we've selected for you!