Real Estate VS Other Investment Types
Real estate will always hold one major benefit over all other types of investments, and that is tangibility. You can see and touch real estate, and regardless how you invest in real estate, either through a property or fund, your investment capital comes down to supporting a tangible investment, and tangible investments never reach a $0 value worth. For this reason, real estate is considered one of the safest asset classes to invest in. It has its cons though, real estate is not liquid, in that it does not convert quickly from its asset form to cash. So, it is important to consider how you value an investment's worth when determining the type of investment to pursue. If you are sold on investing in real estate, stay with us because there are some important things to note.
Benefits of Investing in Real Estate
1. Tax Advantages:
Taxes are one of the biggest expenses for anyone – let alone a real estate investment company, but keep in mind there are ways to combat the loss of money in taxes in real estate. Tax incentives are available for rental houses, apartments, vacant land, commercial buildings, and industrial properties.
2. Cash Flow:
Perhaps everyone’s favorite benefit is cash flow. Cash flow is essentially profit. Cash flow is what is left over after you collect the rent and pay your mortgage, taxes, insurance and any repairs.
3. Hedge Against Inflation:
Inflation is defined as a sustained increase in the general level of prices for goods and services. In other words, it causes every dollar your own to buy a smaller percentage of a good or service over time. Stocks, for instance, require more money to purchase with the increase of inflation. Essentially, inflation prevents your money from going as far as it would have. Real estate, on the other hand, serves as a hedge against inflation. Unlike almost every other form of investment, real estate reacts proportionally to inflation. Inflation drives up your property's value, this means higher rental fees can be charged to tenants.
4. Leverage Funds:
When purchasing a property, you have the ability to do so with leverage. It is entirely possible to purchase a $500,000 property with $100,000 in investment capital. You don’t even have to use your own money. Stocks, on the other hand, require 100% of the investment up front. Leveraging money also allows you to initiate more than one real estate deal at a time because all of your funds aren’t tied up in one project.
In the event that you borrow money for a real estate transaction, you will be required to pay it back with interest. However, each payment also gets you one step closer to paying down the principal. In essence, you’re simultaneously building equity and wealth in the same property.
The links below outline specific differences between real estate and other types of investments: