When done correctly, real estate is one of the most popular and profitable investments with a lot of potential for success. Real estate investing offers many advantages, and investors can enjoy a steady income flow that may lead to financial freedom. We spoke with the industry experts who shared the various benefits of investing in real estate.
The following are the top 24 advantages of investing in real estate from the pros:
1. You Can Build Equity for the Future
April Kozlowski Palomino, Realtor, Coldwell Banker Residential Real Estate
One of the advantages of investing in real estate is being able to build equity. Equity is an asset that is part of your net worth. As you pay off your mortgage, you build equity. As you build equity, you now have leverage to acquire additional rental properties and increase your cash flow.
2. You Can Generate Passive Income
Brady Hanna, President, Mill Creek Home Buyers
By investing in real estate, you can generate passive income that is nearly tax-free. Your rental properties will work for you even when you are sleeping. By buying several rental properties that generate enough income to cover your expenses, you have the freedom to do what you enjoy, instead of spending all of your time at work.
3. It Can Provide Cash Flow for Retirement
Nancy Wallace-Laabs, Co-Founder, KBN Homes
Real estate investing, when done right, is a stable way to increase wealth over a period of time. Among the many benefits of real estate investing is that it can provide cash flow for retirement. This means it can help supplement your retirement years with income from your rental properties.
4. Investing in Real Estate Benefits the Community
Alexander Romanov, Co-Founder, IWillBuyHouse
While most investors focus on the ROI, the CAP rate, the cash flow, and other financial indicators, a huge and unquantified benefit of real estate investing is the impact on the community. Responsible real estate investors improve the communities by improving available housing, maintaining properties, and increasing the local tax revenues. This directly impacts the communities and improves the lives of people living there. By buying and repairing a dilapidated home, one not only removes an eyesore but also improves the self-esteem of the residents living around the home. In a world where investors are associated with unchecked greed, the mom-and-pop real estate investors are a bright spot who change things for the better.
5. You Can Indulge Your Entrepreneurial Spirit
Jason Fox, Founder, Jason Fox Real Estate Marketing
There are many ways to invest in real estate and become an entrepreneur. You can buy a home, fix it up and put it back on the market for a profit. Buy a property to hold and let the appreciation create wealth. Perhaps you become a landlord and start purchasing rental homes, multi-family homes, or even apartments. Maybe land development is for you. You are the boss.
6. You Can Enjoy the Portfolio Diversification Benefits of Owning a Physical Asset
Nicholas Oliver, Principal Broker, HomeDax Real Estate
Investing in real estate offers inflation protection as well as the portfolio diversification benefits of owning a physical asset. Real estate is a tangible asset that can always be monetized through renting or residing in the property, regardless of financial market conditions. This makes it far more resilient against asset market swings compared to traditional stocks or bonds. Real estate is part of the broader category of alternative investments, which include everything from art to collectibles and physical gold. The tangibility of real estate also affords property owners with a sense of stability during bear markets or short-term stock sell-offs.
7. Real Estate Investing Is a Hedge Against Inflation
Daniela Andreevska, Content Marketing Director, Mashvisor
While most people fear inflation, this is not the case with real estate investors. Investing in properties is an excellent hedge against inflation. As the price level goes up, so does the rental income you get from your property and your investment’s value. This means that real estate investors are protected against both the immediate and the long-term effects of inflation. Although this might not be the first benefit of real estate investing that comes to mind, you should take it into consideration because for real estate investors, an increase in the cost of living is associated with a growth in their cash flow. The average annual real estate appreciation rate nationwide has been nearly 6 percent in recent decades, while the inflation rate rarely reaches 4 percent.
8. You Can Enjoy Tax Benefits Through Depreciation
Marshall Armond, CEO, CreditRevo
There are different reasons to invest in real estate. It is a proven way to build wealth over time and can help generate cash when leased. It can also provide you with tax benefits through depreciation, and this can help increase your returns.
9. It Can Be an Alternative Means of Saving for a College Education
Marc A. Van Steyn, Team Leader, The Van Steyn Partners, RE/MAX
Real estate investing can be an alternative vehicle for college savings. It is recommended that young families invest in the purchase of one property for each child they believe will attend college. The property can be financed with a 15-year mortgage, thus being paid off prior the child’s 18th birthday. It allows families to actively save through the renters’ payments. When the property is paid off, they can either sell or continue to use it as a source of cash flow.
10. Owning Property Generates Wealth
Sarah Richardson, Broker & Principal, Tru Realty
Everyone should own at least one house or a piece of property. One of the many benefits of investing in real estate is being able to generate wealth through appreciation, building equity, and hedging against inflation. It can also provide cash flow with passive income from rental properties. These are the reasons why real estate should be a key component of your investment portfolio.
11. Real Estate Can Be a Stable Investment with Ongoing Income
Jeff Holzmann, Managing Director, iintoo
Unlike stock market investments, real estate investment does not wildly fluctuate on a daily basis. It is a stable investment that provides you with an income. You simply collect your ongoing income (known as Cash on Cash Return) on a periodic basis and hope to sell when the price appreciates substantially and the market is high. Of course, the market isn’t the same in every city, so opportunities to buy and sell can vary substantially across the country. Many people compare real estate investing to bond investing, because real estate provides stable cash flow for the owner. However, bonds are more sensitive to market fluctuations. Real estate properties won’t immediately change in price based on capital contributions or because of political volatility. This makes real estate a safe and stable investment. In many cases, real estate investments offer attractive tax benefits to the owners too.
12. Real Estate Is Easy to Finance & Provides Leverage
Bruce Ailion, Realtor & Attorney, The Ailion Team, RE/MAX Town & Country
Real estate as an asset investment vehicle is easy to finance. You can borrow 50 percent to 90 percent of the acquisition cost at attractive rates, often rates below the anticipated annual investment return. The ability to magnify the investment return with financing is called positive leverage. Stocks, bonds, commodities, and art do not offer the same ease when being used as collateral for financing.
13. The Value of Real Estate Appreciates Well Over Time
Wilson McDowell, Managing Director & Principal, Cite Partners
Industrial real estate has been a very attractive investment for many individuals and institutional investors. Recently, the amount of capital chasing the ownership of industrial real estate has substantially increased. Values are increasing for two reasons. The first is that rental rates are continuing to rise because of the demand for these facilities and increasing construction costs. Secondly, with the number of investors bidding on industrial real estate investments, the cap rate, or yield, are continuing to compress, which is increasing values.
14. It Can Outpace the Returns of Classic Investing
Keith Robinson, Chief Strategy Officer, NextHome
Real estate can outpace classic investing because you don’t have to put in the whole amount of investment. If you wanted to invest $200,000 in the stock market, you’d have to put in the full $200,000. If you wanted to invest in a duplex for $200,000, you could do that with as little as $40,000 out-of-pocket. The bank puts up 80 percent of the cash for the investment, but you keep 100 percent of the profits. If both appreciated at the same rate, your return on the real estate investment would be significantly higher due to the fact that you only put up 20 percent of the case for the investment.
15. You Can Help Provide a Home for Others
John Graff, CEO & Broker, Ashby & Graff Real Estate
One overlooked benefit of real estate investing, specifically residential real estate, is the pride in helping provide a home for others. Everyone needs a roof over their head, but not everyone has the upfront resources to purchase a home, making renting the only other option for them. We often hear about landlords shirking their responsibilities and making living conditions downright nightmarish for some tenants. By investing in a residential real estate, not only are you helping house a family, but you’re ensuring that family is housed in safe, healthy, clean, and fair conditions.
16. You Can Help the Local Economy
Raqiba Lela Bourne, Real Estate Professional, Halstead – East Side
One of the advantages of real estate investing is having the opportunity to help the local economy. As a real estate investor, you will have the opportunity to employ local licensed contractors, purchase building materials, and generally stimulate the local economy near the construction site.
17. You Have the Option to Change Your Primary Residence as Needed
RJ Winberg, Realtor & Owner, OC Real Estate Guy
If you own multiple properties, you may have the option to change your primary residence from one to the other, should you decide to do that later in life. Many people prefer a two-story house when they are raising a family, but decide to downsize to a one-story in their golden years because it is more manageable for them.
18. Investing in Real Estate Helps Mitigate Risk
Shawn Kunkler, Realtor, Paragon Real Estate Group
One of the greatest benefits of having real estate in one’s investment portfolio is for mitigating risk. Sure, having a calculated income month over month is an outstanding benefit, but having insulation against higher-risk investments like stocks is often important. Having the right blend of real estate in one’s portfolio can offer just enough diversification to help offset exposure by not hyper-focusing on one single investment profile.
19. You Can Take Advantage of the 1031 Exchange
Marco Santarelli, Founder & President, Norada Real Estate Investments
Section 1031 of the Internal Revenue Code allows you to postpone paying taxes on the sale of your property when you reinvest the gains in another property. This is because the IRS considers that you are exchanging your old property for another property. The new property, however, should be of the same nature as the old one, with equal or greater value. Also, you should find the new property within 45 days of selling the old one and include it in the official documents, and you must close the deal within 180 days. You’ll also need an intermediary to handle the transactions to be eligible for the 1031 Exchange.
According to Bankable Insight, investing in real estate offers a wide variety of opportunities for investors. You have the option to invest in single family residences, multi-family homes, vacant land, and commercial buildings, depending on your initial startup capital, leverage, and personal preference. Even if you don’t have sufficient experience in real estate investing, you can still get started once you have the funds or resources to purchase a property.
Aside from the fact that most real estate values usually appreciate, your real estate investment can never go down to zero, even during a difficult time. Morris Invest believes that you can always sell your property when you own one. Unlike a stock, real estate never becomes worth nothing, even if the value drops.
One of the biggest benefits of investing in real estate is the potential for earning a high rate of return. According to Zito Realty Group, it’s possible to earn rental returns of 10 percent to 20 percent, depending on the location of your income-producing property. This is much better compared to bank accounts, bonds, and even dividend-paying stocks.
If you invest in a commercial real estate, you’ll benefit from longer leases, which can provide you with more stability and dependability. This is because most businesses would prefer to stay in a fixed location for a longer period. Also, according to CityVest, commercial real estate investors have the option to choose from the different types of lease coverage they want to impose on their tenants.
24. Real Estate Investing Offers Flexibility
Allison Bethel, Real Estate Investing Analyst & Writer, Fit Small Business
Investing in real estate gives you flexibility. You can invest in real estate, build up your portfolio over time, and use your rental income or fix-and-flip profits as your main source of income. You can manage your properties and projects around your schedule and work for yourself. This offers you the flexibility of setting your own schedule. Investing in real estate doesn’t have a salary cap, so your earning potential can be limitless.
Real estate investing has many benefits and is a great source of passive income. Because there is a large demand for properties, the value of real estate usually appreciates, increasing your potential for profit. Aside from financial advantages, there are other important benefits of investing in real estate. Check the above advantages of real estate investing to know why this will make a great part of your portfolio.