Why Invest In Real Estate?

There are truly many advantages of investing in real estate. More millionaires have made their fortunes in real estate than anything else! Here is what some of the wealthiest Americans have said:

• “Real estate is the basis for all wealth.” -Theodore Roosevelt
• “Buying real estate is the best, safest way to become wealthy.” -Marshall Fields
• “90% of all millionaires made it through real estate.” -Andrew Carnegie

Let’s look at some of the advantages in more detail:

1. APPRECIATION - Over the past 80 years, real estate values have continually increased. There have, of course, been some periods where values decreased, but the overall trend has been nothing but up. Like anything else, the value of real estate is determined by supply and demand.

So what are the factors that have made real estate in such high demand over the years? One of the main reasons is that shelter is a basic human need. People need places to live, work, and shop where they aren’t exposed to the weather. In periods of high inflation, real estate values go up. Real estate is an investment that benefits from inflation.

2. LEVERAGE - A great thing about real estate is that you can tie up a big asset with a relatively small amount of money. You can easily buy a $100,000 home with only 10% ($10,000) down payment. To illustrate the power of this, consider this example:

Suppose you bought $10,000 worth of gold, mutual funds, or some other investment. Let’s say that it goes up 10% for the year- not bad. Your investment is now worth $11,000.  So your return is 10% of $10,000 = $1,000. Now lets suppose that you take that same $10,000 and put it as a down payment and buy a $100,000 house. Again, let’s say that it goes up 10% for the year. Your property is now worth $110,000!

Your $10,000 investment increased by $10,000. That is a 100% return on your money (not even considering the equity build-up resulting from the constantly decreasing mortgage, cash flow, or tax advantages)!

3. TAX ADVANTAGES - You can deduct, as an expense, all of the interest, property taxes, insurance, repairs, inspections, and depreciation on your investment real estate- no matter how much you own. Do not confuse this with the rule for personal residences. While you can only deduct interest on up to 2 personal residences, you can write off unlimited investment interest.

The IRS also allows you to take a paper write off (depreciation). You can depreciate the structure (not the land) as if it would be worth nothing at the end of 27.5 years! Of course we all know that the property will probably be worth much, much more in 27.5 years than it is now -not less. Nevertheless, on a 100,000 house (assuming, for example sake, the structure is worth 80% of the total) we are allowed to write off nearly $3,000 in depreciation alone each year!

4. FREEDOM - While there is some management and record keeping required, it is nothing compared with some other investments. If you invested in a business such as a dry cleaners or a restaurant, you would be married to the place, putting in God knows how many hours. Real estate investing can be done without too much interference with your current job.

5. SOMEONE ELSE CAN PAY FOR IT - In real estate, the people who occupy your buildings are called tenants. They pay you rent every month that you then use to pay the mortgage. The tenants literally buy your investment property for you! When you invest in stocks, bonds, or precious metals, you are the one who has to pay for it.

6. CASH FLOW - Real estate provides you with a monthly cash flow.  This can be some very significant income, especially after the loan is paid off!

7. SOLID ASSET - Real estate is widely recognized as one of the greatest assets to have. It is looked upon favorably by anyone looking at your financial statements. Real estate is also easy to borrow against should you need extra capital.