Six Benefits of Investing in Real Estate

Six Benefits of Investing in Real Estate

The ability to generate cash flow is a significant advantage of real estate investing. In many cases, cash flow only improves over time as you pay down your mortgage and accumulate equity.

FREMONT, CA: There are various advantages to investing in real estate. Investors can enjoy consistent income flow, good returns, tax advantages, and diversity with well-chosen assets, and real estate can help increase wealth. Here are six benefits of investing in real estate:

Build Equity and Wealth

Since you pay down a mortgage, you accumulate equity—an asset that contributes to your net worth. And as your equity grows, you'll have more flexibility to buy more properties, increasing your cash flow and wealth.

Tax Breaks and Deductions

Real estate investors can benefit from a variety of tax breaks and deductions, which can result in tax savings. Overall, you can cut down reasonable costs associated with owning, operating, and managing a property.

Competitive Risk-Adjusted Returns

Returns on real estate vary depending on different factors, including location, asset class, and management. Still, beating the average returns of the S&P 500, often referred to as "the market," is a goal for many investors. In the last 50 years, the average yearly return has been over 11 percent.

Cash Flow

The ability to generate cash flow is a significant advantage of real estate investing. In many cases, cash flow only improves over time as you pay down your mortgage and accumulate equity.

Real Estate Leverage

Leverage refers to the use of a variety of financial instruments or borrowed funds to boost the potential return on investment. For instance, a 20 percent down payment on a mortgage gets you 100 percent of the house you want to buy. Financing is easy to come by since real estate is a physical asset that can be used as security.

Portfolio Diversification

An advantage of investing in real estate is the possibility of diversification. Real estate has a low – and sometimes negative – correlation with other major asset classes. Thus, adding real estate to a diversified asset portfolio can reduce portfolio risk and offer a higher return per unit of risk.

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