Benefits of Real Estate

When we talk of real estate or real estate property, we are referring to land and building on it together with all the natural resources like water, minerals, farmed crops, uncultivated flora and fauna. This is a sector in the economy known as real estate investment business where there is selling, buying, or renting of land, buildings or housing.

There are plenty of benefits of real estate compared to renting. Such benefits of real estate include tax reduction, value increase.

The question of whether or not it is better to own or rent a real estate property is a valid concern for many renters looking to purchase or invest in a real estate investment business, or many home owners who may be wondering if they made the right choice by investing in the real estate sector. I strongly believe that investing in the real estate investment business or owning real estate property has more benefits that outweigh renting.

In this single article we are going to see the important advantages and disadvantages of buying real estate versus renting. So let’s get started!

 

Benefits of Real Estate Investment Business

 

1. The Investment Loan Pay Down.

Here is one of the most important benefits derived from investing in the real estate investment business. Buying a renter real estate properties using a mortgage loan, your tenants are actually the ones paying the mortgage loan. In such a case, the value of your net worth increases each month and because of the investment loan pay down, this investment can be view as a means of saving your finance. At the end of the loan payment period, you automatically own a significant property or asset without spending a dim.

This usually gives the individual a good credit score for payment done using credit card. Regular transactions involving huge sum increases the lender’s confidence on the borrower. By such confidence, the borrower stands a better chance of being award bigger loans should he have use for it.

 

2. Tax Free Capital Gain

According to some legislation (consider the USA in this case), you are not requested to pay taxes on the profit acquired from the sales of a real estate property like a house. The tax free amount ranges from $250,000 to $50,000 for single and married taxpayers respectively.

Consider this scenario:

A US citizen who bought a home in 1997 for $500,000 and sells it in 2014 for $1,000,000 making a profit of $500,000

According to the US Taxpayer Relief Act 1997, you will be requested to pay capital gain tax on just $250,000 if you are single taxpayer or exempted completely from paying any tax on the 500,000 if married. This is way too much gain in terms of tax payment.

 

3. Tax Reductions

Home owners have the privilege to subtract or deduct the mortgage interest and property taxes paid on their mortgage from the Adjusted Gross Income (AGI). This reduction gives home owners a big gain over renters with the same income. Compared to renters, the reduction in home owners taxes act like an addition to their monthly income.

 

4. Ability to Make Changes

This is a right that renter lack. Renters already are aware that landlords have many rules about what they cannot do within their rented home or apartment. Examples of such rules include not being able to affix furniture shelving to the walls, paint the walls, change the roof and install satellite television on the roof.

As a homeowner, on the other hand, you will avoid all of these limitations. Thus, home owners have the right and privilege to change their property to best suit them, so long as they are in compliance with zoning legislature and city planning. For example, you want to build a guesthouse, replace carpets with hardwood, install solar panels, or change your roof entirely, as a homeowner you are free to make these changes, but a renter is unable to or has to seek permission from the landlord.

 

5. Fixed Monthly Payments

As a home owner, you have the privilege to fix your monthly payments for as long as 30years. This is particularly implemented in guarding your monthly housing expenses from inflationary pressure.

On the other hand, renters except for the few who are able to secure a multi-year payment that keeps their monthly rent expense fixed, the rest are likely to experience an increase in their monthly rent each year.

As a renter, you are very likely to experience an increase in your monthly rent every single year (your rent depends on the owner) but if you are able to secure multi-year payment at a go that keeps your monthly rent expense fixed, only then shall you be free from such increment.

 

6. Value Increase (Appreciation)

Generally, the value of real estate properties increase (appreciate) over time. For example, the price of land, homes has witness a massive rise over the past 10 years.

With the present economic meltdown and high rate of unemployment, the few who took upon themselves to invest in the real estate investment business are benefiting from the appreciation of value of real estate property.

This is a great benefits of real estate owners whereas the renters do not benefit from such increase.

As the investment loan is being repaid, the value of real estate, generally, goes up. Although recessions do happen, values fluctuates (rise and fall). People make mistake and buy at the wrong time of the market, over time the value goes higher and higher. The value of a real property almost always doubles after a long period of about 30 years.

 

7. Improved Borrowing Power

Which of these two people will you likely lend more money?

A person who borrow huge sum and effectively and regularly repay over stipulated period and a person who never borrow before?

Yaah, you borrowing history will score you to your lender should you ever go back for more investment loan. Individuals who use their mortgage loan to invest in a real estate rental property usually have a good credit score as they are able to collect money from the rent and settle their repayment obligation. This enables them to easily secure bigger investment loans and therefore increases their investment potential.

 

8. Cash flow.

This is one of the reasons many people invest in rental properties or real estate investment business. Cash flow is the extra sum left after all your bills has been paid. This usually provide monthly income increasing your financial power thus investment capabilities.  

Cash flow from real estate is relatively stable and far more predictable than most other business sectors. This is great for entrepreneurs enduring the ups and downs of their start-up life. The cash flow can help sustain you during the bad times and live well during the good times.

 

9. Diversification of Value

Diversifying your saving is a major way to mitigate risk. Instead of putting all your income into a low interest rate saving account in a bank, it’s best to diversify and invest in real estate investment business.

The benefits for diversifying your portfolio in terms of asset allocation are huge, including the relative stability and profitability of the real estate sector, cash flow and inflation hedge.

Returns from real estate investment business are relatively higher compared with other asset classes (such as stocks and bonds), which generally adds to the diversification of your portfolio.

 

10. A Hedge against Inflation.

Inflation may be regarded as the process whereby prices for goods and services increase due to a decrease in the value of money.

While the world is afraid of inflation, real estate investment business is booming. More people are turning to real property as a means to fight inflation.

As a real estate owner, while the value of money is decreasing, the value and therefore the price for real properties and rents are increasing. This provides the owners with better gain over time.

What is surprising and again a benefit to people who used their mortgage loan to purchase a real property is that, the fixed-rate mortgage doesn’t change. While inflation influences the cost of living, making it goes higher and higher, cash flow will only keep on increasing. For this reason, the real estate investment business is often referred to as a “hedge against inflation”

 

11. Control.

As a real estate owner, you are in total control of your business and its profit level. This is the reason most people choose to invest in the real estate investment business because they know they are totally responsible for their business success or failure.

If prices goes up for example, you may decide to sale it in order to make better profit but on the other hand, if prices goes low, you may decide to wait still prices become better.

If you want better deal or the market become more competitive, you need to hustle to find it, either by increasing your advertising. If the value drops, you can choose to wait or improve the property to push the value back up.

In other words, you have the total control of the situation, and your financial future is in your own hands.

 

12. Improved Credit Scores and Worthiness

This is measure based on your debt and payment history of your borrowing activities with your credit card. If you use your credit card to carry out more than the minimum payment consistently and timely, your creditors will automatically increase your credit limits. This is simply due to the fact that they feel more secure that you have the ability to repay what you borrow.

Using your credit card to make regular transactions involving huge sum like repaying your mortgage loan and/or make huge purchase like buying a car, greatly improve your credit rating. Due to this, your credit score will raise securing better borrowing potential from your creditors compared to a person who made limited transactions with his credit card.

 

13. Yield Enhancement 

Having a real estate as part of your portfolio allows you to achieve higher returns for a given level of portfolio risk. You draw more respect and credibility just by having a real estate as part of your portfolio. Not only can you sale it and make more profit, you can use it as a collateral to borrow from banks, thereby increasing your likelyhood of being awarded an investment loan.

As part of a portfolio, real estate allows you to achieve higher returns for a given level of portfolio risk. Similarly, you can maintain your portfolio returns while decreasing risk by adding real estate

 

14. Sense of Community

Although renters also have the ability to enjoy a sense of community belonging, neighborhoods, homeowners benefit from a different sense of community belonging that renters don’t. Homeowners benefit from keeping their neighborhoods friendly, clean, and safe for their growing families. Also, keeping their homes updated and maintaining curb appeal increases the value of everyone's property around that neighborhood as a result.

 

With all said and done, investing in the real estate investment business has plenty of advantage. But, the real estate sector is also as complicated as its profitability. Therefore, owning some rental property is not a guarantee you are going to begin building wealth.

Also, there are some serious downsides pledging the real estate sector such as high cost of maintenance, high cost to acquired such properties including high interest rates on loans, high risk of accompany with natural deserters, frauds and wrong analyses of value.  

You have to learn how to strike deals, how to evaluate a real estate investment, and how to best finance any real properties you want to buy.

Additionally, you must treat it like a business and nurture it to maturity. It's not going to be totally easy up front per say, but as millions of successful individuals throughout history have discovered, the payoff is well worth the sacrifice.

Real estate investment business is generally powerful but only if you work hard and make it right.