As you generate a certain level of success, it is natural that you would start thinking about your overall investment portfolio. You have worked hard to build it and now you want to make sure it is sustainable. You are now at the point of looking for vehicles to help you maintain and sustain that prosperity. As we are all getting older, it is now time where you can enjoy life without having to work every day.
While there are a number of vehicles to consider, here are some very compelling reasons to incorporate real estate into your investments.
9 benefits to having real estate in your investment portfolio
1. Property investing is tried and true
Anyone who has done any diligence on investing knows that better than 90% of the wealthy people have made all or parts of their millions on real estate investing. It is a tangible asset that has been creating millionaires for years. Hard to dispute the facts.
If it works for the Donald Trumps and Warren Buffet’s of the world, it will work for you too. Even many celebrities and pro-athletes count on real estate investing to protect their large salaries.
2. Most sustainable investment
What makes real estate such a highly sought after investment class is its sustainability. The U.S. population continues to rise. Currently it is growing at the rate of netting 1 new person every 11 seconds. Do the math and you will see the staggering number of housing units the country needs to keep adding month in and month out.
Take care of the property (or better yet have your property manager take care of the property while you sip margaritas on the beach) and the property will keep providing cash flow, equity build, tax benefits. Best of all values will continue to rise doubling, tripling in value. For optimum performance, reposition your assets to the next emerging market as markets shift and you will be one of those (90) percenters that made millions in real estate.
3. Control over your investment
The challenge with most investments is you have little or no control over it. Real estate does have a down side in that it is not an instant liquidation investment. It can takes weeks or maybe months to sell. However you have controls over the operation and growth of the investment. If it is not performing as you anticipate you have the control to increase rents by doing some upgrades.
You can sell when the market suggests you should sell, allowing you to sell quickly for top dollar and reposition to the next emerging market. As every investor is different, the ability to have control over your investment is paramount for you to truly get what you desire in an investment.
4. Residual cash flow today all the way through your retirement
Every month your tenant pays you rent and essentially pays your monthly investment expenses for you. What you have left over is that highly sought after positive cash flow. The beautiful thing is most of your expenses are fixed and your cash flow (through annual rent increases) should rise to keep up with inflation.
When buying in emerging markets and riding the economic wave of prosperity of each market, you can grow higher than the rise of inflation which gives even more positive leverage.
5. Tax deductions reduce your annual tax liability
I just sold a property to a person from California and the number one reason he is purchasing is to gain the many tax benefits that real estate affords. Not only can the expenses for your property create tax deductions to offset the income, you can also depreciate the property which adds to tax incentives that can actually assist in reducing the tax liability from your main sources of income.
Talk to your tax preparer about this. The most intriguing aspect about investing that my newer clients find thrilling is the savings they make when doing their tax preparation work. To increase the benefit, the more properties you own, often lowers your tax liability even further. (this is a benefit simply not found in other investments)
6. Equity build up
This is a benefit that is often overlooked as it is a passive income stream hiding in the background. Indeed there are multiple streams of income (or benefits) from real estate. When you use leverage and finance the property, your tenant essentially makes a mortgage payment for you.
A portion of that mortgage payment goes to reducing your principal. As this principal gets reduced it obviously gets recaptured as positive cash growth to you when you sell. This is building your equity each and every month (try getting that benefit from another investment source).
Many consider property value growth to be the number one wealth building principal available today. This is the equivalent of what most people look for in any investment.
It is the increase in value from what they purchase an investment for and what they sell it for. In real estate it is just one of the many benefits.
Unique to real estate investments is leverage, the ability to finance the investment, letting someone else (your tenant) repay the investment while you enjoy the benefits of the appreciation off of this borrowed money. When you buy a 110K property with as little as $20K of your own money the $90k of borrowed money is capturing all these wealth producing benefits of the bank money.
This is so cool there should be a song about it. Where are my song writers?
9. A self-generated savings plan
One of the toughest things for people to do is to continually add to a savings plan. Once you generate a down payment for an investment and then use leverage to magnify the investment, you have a self-generating savings plan.
The interesting thing I have found with my clients (present company included) is that as you see these savings (your net worth) grow, you become more and more compelled to save more. The speed and size of the savings is indeed much more significant than you can see with a typical savings plan and this is a strong motivator to continue to build that wealth.