Summary: Why Real Estate? <br> Many people ask Why Real estate? Everyone has a unique answer, and here is mine. <br> Real Estate is a tangible asset, and to me it is easily understood. I can wrap my head around rent, mortgages, insurance, repairs, etc. I can look at a property and ballpark estimate what it’s worth, and what it will rent for. I understand the transaction process - from renting to buying or selling. Real Estate is a relatively simple subject. There are no complex schemes, trades, or transactions. It’s up front and widely understood, at least to some extent, by almost everyone. <br> Real estate investing has always appealed to me for several reasons. <br> 1. You have direct control over the asset. If you want to increase the property value with renovations or upgrades, you have the ability to do that. In multifamily properties, if you want to force appreciation by increasing income or lowering expenses, you can. <br> 2. The property value will never go to 0. While you’re property value may depreciate over time, you’ll likely never see that property value be worth nothing.<br> 3. Your financial investment is secured by an asset. <br> 4. While certain types of real estate, like commercial or retail, may not be in demand forever due to changing consumer trends, residential real estate will always be in demand. People might be able to do away with brick and mortar stores, and order all of their products online, or work from home, rather than going into an office, but at the end of the day, everyone needs a place to live. <br> 5. The power of leverage. The true power of real estate lies in the debt that can be placed on real estate. By using other people’s money, like a bank, you can put a small down payment on a property and then control it. <br> Real estate investing provides multiple income streams<br> 1. The most obvious one is rental income. The cash flow you see each month is the rental income minus your expenses. Your expenses include the Principal, Interest, taxes, insurance, vacancy, and management. <br> 2. Appreciation of the property. Historically, property values have increased 6%. <br> 3. Loan pay down. My favorite kind of debt, is the debit that someone else pays for you. That’s exactly what residential real estate debt is. The tenant pays rent, and part of that goes towards paying down your principal. <br> 4. Tax benefits. The tax benefits of real estate can prove to be the most valuable. The IRS will allow you to depreciate your asset over time, regardless of the market value. This is a phantom deduction that is extremely valuable to real estate investors. We’ll have an entire show or two dedicated to the tax advantages of real estate by someone much more knowledgeable than I am. <br> 5. Hedging against inflation. In an inflationary economy, locking in a long term, low interest loan will hedge against inflation. Think of it this way, your $500 mortgage payment will be worth more today, than it is next year. That is to say that $1 today is more valuable than $1 in the future. While inflation will erode the purchasing power of your dollar, it will not erode the value of your mortgage payment. That mortgage payment will remain the same.
