WHY USE REAL ESTATE AS AN INVESTMENT ALTERNATIVE?
Real estate investment is the way of the future. Property is one of the most solid forms of investment, as it is an inflation hedge to stock and bond investing, where you are able to generate wealth through both income growth and capital gains over time. There are several advantages and benefits of securing an investment property, so we’ve compiled a list to help you get to the bottom of the topic.
REAL ESTATE VS. STOCKS
Property investment has consistently proven to outperform other investment types including shares and bond interest. For example, Real Estate has traditionally outperformed the Wall Street equity market.
In your new investment property you can start to receive an income almost immediately. Once you have tenants in your property you are on your way. Many real estate investments offer positive monthly cash flow after your mortgage and other related expenses are paid. This cash flow will increase over time as your mortgage financing decreases incrementally and rental rates increase.
OTHER PEOPLE’S MONEY
One of the hallmarks of real estate investing is the ability to use the rental income you earn each month to pay down your mortgage financing. This benefit is unique to real estate investment. Generally speaking, the rental income you earn will be sufficient to cover your mortgage payments and the other expenses associated with your investment unit.
VALUE INCREASES AS IT APPRECIATES
As communities grow, so too does the value of your property. History has shown that real estate prices have continued to steadily increase over the years. The longer you hold onto your investment property, the more potential you have to get a high return.
Your new investment property will provide you with a number of deductions that can be claimed on your tax return, such as interest paid on the loan, repairs and maintenance, realty taxes, insurance, agent‚Äôs fees, , and buildings depreciation. Also, when you own an income property, the interest on the mortgage payments is tax deductible. All this will help you save money when it comes to tax time.
While tradition investments such as stocks and bonds can provide exceptional opportunities for wealth, the inherent risks are evident with the market‚Äôs constant fluctuation. Real estate, on the other hand, while more illiquid assets, is far more consistent in terms of market volatility, it can continue providing you steady returns even during lulls in the economy.
As the cornerstone of a well-balanced investment portfolio, diversification helps to offset volatility in any one particular asset class and ultimately reduces your overall portfolio risk. Investing in real estate is a powerful way for you to add a valuable layer of diversification to your investment portfolio.
IMPROVED FUTURE BORROWING
You can use your rental property as security to borrow money to purchase other properties cross-collaterization. This allows you to leverage to a greater extent than if you were using unsecured debt as security.
Leverage simply means using borrowed capital to enhance the earning potential of an investment, and when compared to other investment classes, real estate delivers the greatest opportunity to use the power of leverage. Since real estate is a tangible asset, financing is generally more easily attained and your potential returns are heightened considerably compared to a non-leveraged investment.
The main reason people will buy property instead of shares is that there is less volatility in property as it is an illiquid asset calss. People are able to sleep well at night knowing that the price of their property is very unlikely to drop overnight, which can easily happen to the share market.
The inflation hedging capability of real estate stems from the positive relationship between GDP growth and demand for real estate. As economies grow and develop, added pressure is put on rental properties. This causes rental prices to increase, which will ultimately increase your revenue return as well as your capital gain.
YOU ARE IN CONTROL
Property is a great investment because you make all the decisions and have direct control over the returns from your property. The choice is yours: residential or commercial, multifamily or single family, hotels, industrial or offices? You get to decide. There are plenty of options out there, and doing some research will help you find the right property for you. Investing in a property that you are familiar with, will help calm the nerves that can be prevalent when making a big decision.
FORCED RETIREMENT PLAN
Many people like the idea of an investment that can fund them in their retirement. However, investing in property is a significant commitment that you are required to commit to and maintain. You will always be grateful in the long-run when you don’t give up on it and build future cash flow and capital wealth. Rental housing is one sector that rarely decreases in price, making it a good option for long-term investments. Real estate will typically increase in value as time goes on, compared to a savings account or a bond investment that will lose value as inflation rises.
Before you make any decision about investing in property you should find out as much as you can. You can research the potential pros and cons on your own, but as investing is demanding and a big commitment we recommend you take advice from a True North Asset Manager. As your professional advisor, we do all the work involved with investing, so you don’t have to. Let us help you path a way for a secure future.
Contact Us today to find out how we can help.