Saturday 09 December 2023

4 Vital Reasons Why Real Estate Is A Smart Investment

To enjoy greater financial freedom, you need to invest in assets that will provide positive cash flow. If you are afraid of losing your money in the stock market or dissatisfied with the low interest rate offered by saving your money in the bank, then you need to consider investing in real estate. Here are the main reasons why investing in real estate that provides income is a smart idea.

4 Vital Reasons Why Real Estate Is A Smart Investment

Positive Cash Flow

A major benefit of investing in residential or commercial properties is that rent or leases usually help you to secure your assets. Each property produces a net income for you after taxes and mortgage payments have been deducted. So you end up having a positive net cash flow. This gives you a regular income stream that is substantially greater than what you can receive if you invested the same amount of money in the stock market or kept in a fixed deposit account in the bank.

Debt Can Be Leveraged to Increase Asset Value

Investing in rental houses or commercial real estate gives you the opportunity to put debt on your asset, and this debt is usually far greater than the original equity. Hence, you can buy more properties with little money and increase the value of the asset significantly. Then as the loans are repaid, you can raise your equity in the asset. This privilege to put positive leverage on a piece of property enables you to generate positive cash flow from your investment by obtaining a mortgage loan at a lower cost than what your property pays out as rent or lease. That is why some ardent real estate investors say that homes are the perfect investment solution.

4 Vital Reasons Why Real Estate Is A Smart Investment

A Physical Asset that Appreciates in Value

Income producing property is a hard tangible asset that is extremely valuable. For this reason, this kind of asset is always accepted as collateral for loans by most lenders. The land is valuable, the building on the land has its own value, and the income that comes from the tenants is also valuable to future investors. No matter how the rate of inflation rises, residential and commercial properties have offered substantial appreciation in value. In fact the net value of the property will continue to increase as long as it is managed properly and rent continues to rise steadily.

A Means to Beat Inflation

Over the years, real estate investments have appreciated in value at a rate that is slightly higher than the rate of inflation. Real estate outperforms treasury bills and corporate bonds in this regard. As money is printed to enhance economic growth, owning real estate that produces positive income can act as a hedge against monetary inflation. In most cases, as the rate of inflation rises, the cost of rental properties will increase accordingly.

As long as you invest in the right type of property in a good location and it is occupied by the right type of tenants, the value of your property will rise and you will continue to enjoy the benefit of this valuable asset. That is why investing in real estate is a very smart idea.