As the stock market takes us on a roller-coaster ride and global markets are shaken by coronavirus scares, I thought it was a good time to remind you about a bedrock investment: real estate.
In fact, owning real estate – whether it’s your own home, buying rental properties, flipping houses, or investing in commercial real estate – should be a fundamental part of every portfolio. There’s a good reason why 90% of American millionaires made a significant portion of their wealth through real estate!
Of course, one of the biggest advantages of owning real estate are the tax benefits, but I wanted to give you a quick primer on the upside of real estate as an investment and asset class.
With real estate, you can leverage the bank’s money to buy, using a mortgage. So, you can often put 20%, 3.5%, or even no money down when you initially buy, essentially making the bank your business partner and gaining ownership of the entire asset. When the home goes up in value, you benefit from that equity – not the bank, which is true leverage!
When you invest in a stock or mutual fund, you really have no control over the performance of that investment – you can’t make any day to day decisions outside of conducting initial research. But with real estate, you have direct access to buyers and sellers, scrutinizing every contract and property, and negotiating dutifully to make sure you get a great deal.
With real estate, you can actively improve the value of your property, whether by sweat equity, hiring someone to perform home improvements that raise the value, or even focusing your efforts on cleaning up the neighborhood and its Neighborhood Watch, parks, schools, etc.
• Markets are predictable
Put aside the fear (and greed) and look at real estate from a historical, 10,000-foot-high perspective, and real estate markets are fairly predictable. The market goes up for a spell, and then goes down. We know the four cycles of real estate markets, what economic factors define those cycles, and even have an idea of when they occur. That makes investing relatively simple for students of the game.
• People have to live somewhere
“Buy land – they’re not making any more of it,” goes the famous saying by Mark Twain, and it still couldn’t be truer. People always need to live somewhere, and life’s circumstances (like aging, divorce, financial problems, getting married, etc.) mean that people will always need to buy, sell, or find a place to rent, regardless of the economy. Therefore, real estate ALWAYS offers golden opportunities for the careful and strategic investor, no matter how good or bad (those are the best times to invest) the housing market.
• Tax Breaks
If you’ve worked with me before or some of the real estate investment organizations in my network, then you know that owning property affords us some of the best tax breaks we’ll find anywhere. From a vast lineup of deductions for real estate owners and investors to capital gains exclusions, the government has long promoted homeownership and property investments through generous tax advantages.
The downside to real estate?
Of course, there’s no “perfect” investment, and real estate has some disadvantages, too. For instance, real estate isn’t a liquid asset, which means it can take you a long time to sell it, and you’re at the whim of the market, your value, etc.
But, for most people, it’s a crucial part of a sound and balanced investment portfolio.
If you are reading this and currently in real estate as a landlord, a home flipper, wholesaler, or even a broker and you feel like you are paying too much in taxes, click here to schedule a discovery call where we will review your business activity and tax exposure.
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