July 23, 2021

Diversifying where you put your investment funds is a critical part of whether or not you will be financially successful long term. It is far too risky to potentially suffer the losses that can come from putting all your eggs in one basket.  These losses can happen in an instant and leave you with nothing. This is why it is much smarter to invest some funds in the stock market and some in real estate.  That way, you will help increase your chances of higher earnings and fewer losses across the board.  A lot of investors avoid real estate investments because they are intimidated or believe the misconception that you need a lot of money up front to invest. Luckily, neither scenario is true. Below are a few great reasons why real estate investing is a smart move.

Better Leverage

There aren’t very many investments options which allow you to invest in assets worth much more in value than you may have to invest. For example, $10,000 invested in the stock market will usually just get you $10,000 worth of stock. Real estate, on the other hand, can allow you to put down a small percentage of the properties cost and invest in the entire thing. For example, investors often secure a property worth $100,000; and only have to put down $10,000. It is not hard to find a lender to finance the rest as long as your income and credit are within good standings. This means you can invest just 10% of the property’s value and work towards owning it. As you make the monthly payments, you’ll secure more of the investment, increasing the rate of return and also gain from the property’s appreciation over time.

Better Appreciation

On that note, it is important to understand that real estate appreciates naturally most of the time. Typically, real estate appreciates 3% – 5% annually without you doing much besides maintaining the property. If you wish to go beyond that rate of appreciation, you can usually increase the rate by making even minor improvements and repairs.  That said, not ever improvement will increase a property’s value, so it’s smart to hire a licensed appraiser or real estate agent to find out the best renovations to maximize the appreciation.  Keep in mind, the renovations don’t have to be major.  Of course, adding a room will typically add more value than simple cosmetic improvements, but even minor enhancements can drastically affect a property’s value.

Tax Benefits

Real estate investors can take advantage of many tax write-offs. As a business owner, you can often write off the following expenses:  The interest paid on the loan, origination points, maintenance expenses, depreciation, property taxes, homeowner’s insurance, and HOA dues.  It is wise to consult with a tax expert before assuming you can write expenses off, but know that investing in real estate has many advantages. When you invest in stocks, you can only write off the capital losses if you need to sell the asset for less than you paid for it.

Steady Cash Flow

If you buy and hold a property, you can earn monthly cash flow by renting it out, and this increases the returns from owning real estate since you aren’t relying only on the appreciation but the monthly rental income.  It can feel overwhelming to buy an investment property, find a reliable tenant, and manage the property, but there are many available companies and resources out there to assist you along the way.

Financial Security

There’s a lot of financial uncertainty when you invest all of your funds in the stock market. As we all learned during covid, it can change in the blink of an eye. When you invest in real estate, on the other hand, you have an appreciating asset. It may go through ups and downs along the way, but a property’s value will usually return to overall gains if you hold onto it long enough.

Like all investments, there are pros and cons to investing in real estate. Understanding the risks can help you make the right investment choice for your needs. You may find that you still want to invest, but knowing the negatives can help guide you to smarter decisions that will protect you long-term.  Real estate is a great way to diversify your investment portfolio. When you invest some of your funds in real estate you can offset other high-risk investments like the stock market. In addition, if you invest in rental homes, you can enjoy the cash flow while the home appreciates, giving you significant gains when the time comes for you to retire.