Owning land has been one of the hallmarks of wealth for the entire duration of human history. It is a stable, tangible form of wealth that remains largely unaffected by the volatility of other investments, like stocks and bonds, and can be a great entry point for beginner investors. It also continues to grow, despite the occasional dip. In just Florida, home prices increased by a third over the last year and nearly 70% over the preceding 5-year-period. In fact, median home prices were recorded at well over $300,000 across the state.
Compared to other kinds of investing, real estate offers a lower barrier to entry. There are no lengthy calculations to do or advanced degrees needed to become an excellent real estate investor – all you need are your instincts. You can glean everything about a property from a single visit if you are observant. On the other hand, you would have to spend weeks and months poring over a company’s bank statements to ensure it is free of unscrupulous accounting before buying a single stock or share.
If you’re still unconvinced about dabbling in this lucrative financial arena, read on to learn about the prospects and benefits of real estate investing.
Gradual & Consistent Appreciation
Real estate investors typically make money through a combination of activities, but it is a ‘real’ asset at the core of all this growth. As such, it grows even through recessions and disasters. Take COVID-19, for instance.
Even though it has brought many industries to their knees, it barely touched real estate. In Orlando alone, property prices jumped by nearly 20% in the last year, and properties spent just over a month on listings on average. Experts like the Realty Medics predict that this trend will continue well into the foreseeable future, even as the pandemic continues to shutter businesses and leave share prices in the gutter.
Most real estate can be beautified, extended, or otherwise made more attractive to prospective buyers. Any repairs you perform, fixtures and beautification efforts will turn more heads and increase value. In addition to this steady appreciation, you can also ensure that your property values go up by putting a little TLC into it. This forced appreciation makes real estate such a lucrative option, especially for those handy with power tools.
Real estate investors are generally given more leeway by both the government and society because of their crucial role in improving land use for others. This positive perception leads to real estate investors paying lower taxes. According to the Kentucky board of revenue, real state tax has dropped from 31.5 cents on $100 to just 12.2 cents. In Florida, property owners pay a little over $1700 in annual taxes, which only equals 0.98% of their asset value.
On top of this low rate, most states also allow you to deduct a ‘fair and reasonable cost of maintaining your property. This includes travel costs incurred while inspecting your real estate, maintenance costs, and depreciation over a lifetime. You can also use a 1031 exchange to defer capital gains and pay lower taxes. The real beauty of this investment is that you can pay these off with other peoples’ money, using their rent to cover any mortgage payments and additional costs—a true win-win situation.
Access & Leverage
Real estate, being a tangible asset, paints you in a favorable light when you apply for funding to increase the worth of your assets or start other projects. Banks are eager to finance real estate purchases, especially if you have a good track record. Just paying a fifth of the mortgage, for example, can get you a property that you can then leverage as collateral in another deal.
So, the more you dabble in this kind of investing, the more doors you can go even further. Having a decent credit score, a sponsor, or even a consistent job can set you up for success. You will be able to present these intangible things to get a reasonably-priced loan which you can then exchange for tangible wealth. This means that very little of your cash will be bound up in your real estate venture.
By using the bank’s money to improve your real estate, you avoid the risk of wiping out your wealth. Real estate offers unparalleled control and freedom, unlike the stock exchange, which can collapse at any time due to forces much larger than you. The only way to lose money in real estate is to be impatient and sell too soon, missing out on opportunities for higher returns on your investment. As long as you spend sensibly and wait patiently, you will reap all the rewards real estate investing offers.
A World of Possibilities
Stocks and bonds may rise or fall due to choices made by other people, but real estate places a plethora of options at your disposal. Say you purchased a house intending to beautify and flip it for higher value, but the market slumped just as you were gearing up for the kill. No problem – just rent it. People will always need a place to live, and troubled times will bring renters just as readily as the good times bring buyers.
Real estate can ease your worries in other ways, and the promise of passive income – can free up your time to pursue the goals that really matter to you. Your property can be rezoned, and you can cash in on it by changing how you use it. If the district you built a house on, for instance, becomes a commercial one, you can always convert it to an Airbnb. Suppose businesses that attract entrepreneurs or college students prop up around you. In that case, you can always take the chance and sub-lease your property as a shared workspace or a bar. The choices are truly endless.
Investing in real estate can be a great way to build true wealth that resists market volatility and can be a hedge against inflation. It is an easy investment route to break into and offers the promise of stable, passive income that you can amplify with your own efforts. With a little bit of time and commitment, you can leverage your real estate for many financial benefits and control how you use and dispose of your properties.
Make sure you trust your gut and keep an eye out for that next big deal, and you’ll be on your way to real estate success in no time.