It’s typically cliche to harp on the fact that Real Estate as an investment class is one of the most powerful and popular ways of improving wealth and achieving financial freedom. But there’s a reason that cliches are cliches. It’s often because they’re true. In this case, that’s no different. So let’s examine why.
Often considered the principal benefit of investing in real estate. By renting out the property that you own, be it a residential unit or commercial unit, you are able to generate monthly income that can be used as a great source of supplementation of your typical monthly income, all while building equity in the unit.
Speaking of building equity, not only can you build this overtime by using your rental income to pay down your loan, you can build even more equity as your property increases in value, or appreciates, over time. This may occur for a number of reasons, such as rising demand for properties in a particular area, improvements made to the property, or changes in a local economy. Property appreciation can be one of the most powerful wealth building tools any asset class has to offer.
Investing in real estate allows you to diversify your overall investment portfolio, which can help to protect you during times in which the economic landscape changes. If, for example, stocks, bonds or other asset classes are down, the investment property you own may still be increasing in value, protecting you from the losses you’ve sustained from other asset classes.
As you accumulate equity in your investment property, you may use this to help acquire even more investment property. If you’ve been able to build up, say $100,000 in equity on a property you own, you can take out a line of credit against the home that you own and use it to purchase even more real estate, thus increasing your portfolio, amount of monthly income/cash flow and allowing you to take advantage of each properties appreciation and equity build up over time.
Investing in real estate can offer certain tax advantages that can help to reduce your overall tax burden. For example, you may be able to write off the cost of interest on your mortgage, property taxes, and other expenses against your rental income, which can help to reduce your taxable income and increase your overall return on investment.
A hot topic right now is the effects that inflation is having on our economy. One way to protect against that is to invest in real estate. The reason is simple. Inflation is the general increase in prices of goods and services over time, and it can have a negative impact on the purchasing power of your money.One of the reasons why real estate is considered to be a good inflation hedge is that it has the potential to appreciate in value over time. As the cost of goods and services increases due to inflation, the value of your property is likely to increase as well. This means that your property will retain its purchasing power even as the cost of living goes up.Another reason why real estate is considered to be a good inflation hedge is that it can provide a steady stream of income in the form of rent. As the cost of goods and services increases due to inflation, the amount of rent that you can charge for your property is likely to increase as well.
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