When it comes to investment, people often run behind stocks, mutual funds, and bonds but hardly a few people think of real estate as an investment, which is quite a better option than others. Real estate is not just a method of creating passive income, it can immensely help you create a luxury retirement plan and can build a diverse income portfolio. If you want to ensure a constant cash flow for years, real estate can be your true companion.
Why should you invest in real estate?
When it comes to real estate, there is a ton of dollars to be made, especially with the Canadian Market—it is booming currently like never before. Real estate has always been the truest fellow of people who want to build a diverse investment portfolio. From amazing tax benefits to outstanding rates of returns, what is there that you can’t earn through investing in real estate.
However, whether you’re a buyer or an investor or a realtor, understanding the facts about the market is essential for you. Having said that, we have facts about the real estate market for you.
- Despite the Covid-19 crisis, the real estate market of Canada continues to make new records in 2021.
- The HPI (Home Price Index) jumped 2.3% month-over-month. It used to jump 17.3% year-over-year.
- National residential sales jumped 6.6% month-over-month in February.
- The national average sale price rose 25% year-over-year in February.
- The newly listed housing properties rallied by 15.7% in February.
With these facts of the real estate market, you can easily calculate how far the monthly sales of properties can go from past norms—they’re setting new records and reaching new heights day by day. So, this shouldn’t be a surprise for anyone who was doubting the potential of real estate as an investment option.
How is real estate as an investment different from other investing methods?
Well! this answer is not going to be any different—real estate is a good investment option, here is why? 25 Times Rule, you must have heard your financial planner talking about it often. This is basically a rule to check what amount your retirement portfolio should have to live an easy life. Suppose, you need $50,000 per year after your retirement, then with the “25 Times Rule”, the amount you will need in your bonds, stocks and mutual funds should be $1,250,000 to retire.
At your retirement, with the “4 percent rule”, the financial planners will start setting these possessions. This simply indicates that they will liquidate four per cent of your portfolio per year until it settles down to zero. If you retire at 65, exactly after 25 years, you will go broke, if you live past 90.
Unlike stock investors, real estate investors don’t rely on the “25 Times Rule” to plan a safe and secured retirement. It takes an investment of $700,000 to accrue $2,800,000 in real estate that can pay $50,000 per year post-retirement, whereas you have to invest $900,000 in stocks to achieve $50,000 per year.
If you accumulate $2,800,000 in income-producing real estate it will pay $50,000 a year in income and continue to appreciate in value over the years, not only covering you indefinitely but also leaving you something to pass on to your children.
Let’s dive deep into ten exceptional benefits of “Why you should invest in real estate”?
1. Real Estate is easy and offers equity buildup
Understanding the stock market, mutual funds etc., is intimidating, especially if you’re new in investment. But when it comes to real estate, constant research, being updated with the market and a little calculation is enough. Real estate is easy to invest in and buy. You can buy a property with a small down payment with the rest of the amount being provided through the lender’s debt financial system.
With time, the loan’s principal amount will be paid down, initially slow, and then fast towards the repayment period ends. This principle of reduction will build equity.
2. Real Estate Investment is leveraged
It is like increasing the potential ROI (return on investment) through borrowed capital. In real estate investments, leverage happens when a loan is used to lessen the investor capital amount needed to buy an asset.
The annual ROI on a property of $20,0000 with a net cash flow of $20,000 including cash is ten per cent. Leverage is the biggest benefit of investing in real estate, all you need to do is plan wisely.
3. Real Estate Investment is for long-run
Real-estate investment is the best for people who want to invest for their retirement. Getting constant cash post-retirement gives you the freedom to live a prideful life—you don’t depend on anyone for money. It ensures that you can take care of your health, and other essential necessities without being a burden on anyone. Real estate investment can also be a good companion in your 60s and 70s if you want to live a peaceful life with your family.
4. Real Estate Investment is Improvable
This is one of the biggest advantages of real estate investment—if you renovate your property time-to-time, it will ultimately increase its value. Whether you hire an expert to renovate your asset or do it yourself by updating interior decoration, it is all worth it.
5. Real Estate investment doesn’t fluctuate
Along with your ongoing incomes such as business or job, investment in real estate can be constant. Unlike other types of investments, it doesn’t fluctuate from time to time. Loss is rare in real estate since any property bought at a good price can be retailed at an excellent price (if you have the right realtor by your side).
6. Price in the Real state increases from time to time
Depending on the country or state, the price of real estate increases from time to time. In short words, gains are constant in real estate. Or, even if the market value is low, you can still retail your property at a good price and generate excellent ROI unlike other types of investment methods. Due to short term fluxes, real estate can never be at risk. If you’re not an expert, take the guidance of a realtor, let them handle the situation while you can enjoy constant income from your property.
7. Renting your property can upsurge cash flow
Like we have just said, you can “enjoy constant income” from your property by renting it out to a genuine family. Most of the families still don’t afford to have their own house and they prefer to stay at a rented house, you can rent them your property and generate a constant income. Also, rents are likely to rise over time which leads to better cash flow. By renting your property, you can easily achieve your future financial goal.
8. Tax rate of real estate is lower
If you sell your property after a year or two years, the profit is subject to capital gains tax amount (the tax one pays while selling their investment property, or own the house with certain confines). The capital gain taxes are 15% to 20% which is much lower than any real estate investor’s personal tax bracket. This is one of the most convincing answers to why invest in real estate.
9. Real estate investment diversify your portfolio
Investment experts suggest expanding your portfolio to avoid losing everything in one fell leap if the market you have invested big dollars in goes down. Real estate investment is one of the best ways to lower the risk, generate better revenue.
10. Real estate investment is good for local communities
Last but not least, by capitalizing on reasonable housing, adding upgrades, and maintaining it well, you can provide a functional house to people who can’t even afford to buy a house for their family even a small down payment and help local economies.