When asked what was the best way to invest money you wouldn’t need for ten years, the number one choice was real estate by those surveyed by Bankrate. These recent findings solidify how real estate is growing in popularity over other investment vehicles like stocks, bonds, gold, and other cash investments.
The clear answer is the benefits. Residential rentals offer benefits you won’t find with other types of investments. These benefits include:
Unlike other investment vehicles, real estate investing enables you to generate cash flow every month by your tenants paying rent. You can then use this money to pay off your mortgage, if you used financing to purchase your investment. Once the mortgage is paid off, the full cash amount goes directly into your pocket. If you used cash to buy your investment outright, you can use the monthly cash produced by your investment right away to fulfill your financial goals, create another stream of revenue, or re-invest it to build a powerful portfolio of multiple income-generating properties.
When you use leverage to purchase an investment property, you are essentially using “other people’s money” to build your wealth. Additionally, you don’t need to have a large initial investment than if you pay in full cash, only around 20% for the down payment in comparison to the full price of the home if you pay in full cash. As the home appreciates over the years and tenants pay off the loan, you accumulate equity on your property and further build your wealth.
A Hedge Against Inflation
When you invest in residential rentals, you own a tangible asset that can provide a hedge against inflation. In fact, rents typically increase 2-3% per year and properties increase in value through appreciation. Therefore, this yields an asset that provides monthly cash flow and grows in value over time without being subjected to large economic trends like other asset classes.
With the recent volatility of the stock market, it’s no wonder why people are turning towards real estate. Residential rentals are a non-traditional asset class that isn’t tied to the stock market. Not only will you be able to add an extra layer of diversity to your portfolio, you’ll still be able to earn steady cash flow even during a down market. In fact, during some of the toughest bear markets within the past few years, SFR investors were able to continue to increase rent as the stock market plunged lower.
Best of all, there are some great tax advantages that come with owning real estate. You may be able to write off expenses regarding the maintenance of the property, interest from financing, insurance and several other items associated with the property.
Current Economic Climate
The demand for single family rentals is increasing every day. This means that it is not only easier to find renters, it also means higher rents that will continue to increase in the future.
Two of America’s largest population segments are greatly changing the way property is owned in the United States. Baby boomers (age 52-70 years old) are preferring to keep their assets liquid and choosing to rent instead of buying. On the other side of the scale, Millennials (ages 18-34 years old) are delaying first time home purchases altogether in favor of renting for longer periods of time.
With homeownership rates are on a steady decrease and expected to dip even lower in the future, now is the right time to purchase an income property. Have questions about getting started in real estate investing? Ask an expert by calling 888-276-0232 or schedule a consultation.