Home buyer holding house keys.

The Benefits Of Holding Real Estate As An Investment

There are a million options out there for investors these days, but real estate remains a tried-and-true way to increase your wealth with relatively low risk. While it’s true that we’re living in a time of global uncertainty, the majority of Americans believe that buying property remains the best long-term investment.

Startups, cryptocurrency, and NFTs are all the rage right now, but their value wildly fluctuates which could result in heavy losses. It’s wise to diversify at least some of your funds into a safer option.

Gilded Age mogul Andrew Carnegie once famously said that 90% of all millionaires become so through owning real estate. Or as Mark Twain put it, “buy land, they’re not making it anymore.” Shark Tank judge and entrepreneur Barbara Corcoran says that “buying real estate has made me rich.”

There are no guarantees in life of course, but you rarely go wrong by purchasing property. If you’re ready to hit the road to financial freedom and create new income streams, here’s all you need to know about the benefits of investing in today’s real estate market. 

Passive Income

Let’s start with the biggest bonus of all — effortlessly earning money from your investments without doing a bunch of work. Generating passive income is a main goal of hardcore real estate investors. Who wouldn’t want to sit back and relax while the money rolls in?

Unfortunately, it’s not quite that easy. If you’re not familiar with the ins and outs of owning rental property, it’s not all fun and games. You’ll need to have a business plan in place to determine your strategy, and you should be proactive in doing your due diligence

Dealing with tenants, repairs, and other day-to-day issues may not be your cup of tea, so it might make sense to utilize a property management firm. While this will take a lot of things off your plate, it also reduces your profit margin, so you’ll need to carefully consider how much you want to be involved.

Tax Breaks

Another key benefit of owning real estate is reducing your tax burden. Your accounting professional can help you determine which strategies will work best with your portfolio. In the case of rental properties, the IRS lists several deductions you can take, including mortgage interest, operating expenses, depreciation, and repairs. 

Property taxes are paid to your local municipality and support the community in various ways. You can deduct these from your federal income tax using a Schedule A form for itemized deductions. 

A Section 1031 Exchange is a tax-friendly way to buy and sell investment property without taking a capital gains hit each time. You can defer this liability by utilizing a 1031 Exchange to roll over profits from one property to invest in a new one. This tool is only for investment properties that have been owned for a length of time, so a house you’ve bought to flip quickly won’t qualify. Consult with your CPA to ensure you’re checking all the boxes. It’s worth reiterating, we’re not tax professionals, so we’re merely pointing you in the direction of what to ask your CPA, and these considerations should not be construed as tax advice.

Hedging Against Inflation

As we move into a post-pandemic world, we face supply chain challenges, high demand, and rising costs on every front. Prices are going up faster than they have since the early 1980s. What’s causing this, and how does investing in real estate protect your assets against inflation?

The term “inflation” simply means that your money doesn’t buy the same goods and services that it used to — it’s a loss of purchasing power that leads to a slowdown of economic growth and raises the cost of living. 

Investing in real estate can help you hedge your bets against this situation, as property continues to hold its value. Inflation can elevate wages, which means people increase their budget for renting, which is great news for the property owner. Interest rates are relatively low, so now is the perfect time to leverage your credit and add to your portfolio with a smart real estate investment.

Equity and Diversification

Paying down a mortgage builds equity, which allows you to have the funds to reinvest in well-researched and profitable new opportunities. Property equity is inherently low-risk and will continue to steadily grow even through the worst bear market, which protects your hard-earned wealth against volatility. 

What’s the big deal about diversification? If you’re dedicated to achieving financial freedom for your family, then diversifying your portfolio helps you manage risk and make money across a spectrum of different investments. 

There are many ways to diversify across asset classes and geography. Stocks and bonds, commodities, infrastructure, new business ventures, foreign securities, and real estate are all acknowledged as elements of a well-diversified portfolio. Since property is considered one of the safest investments around, it will counterbalance riskier ones like tech stocks or crypto.

The Bottom Line

We’re living in unpredictable times, so why take unnecessary risks with your money? Investing in real estate has many benefits that will help you build generational wealth and ensure your family’s security. 

You can enjoy passive income and tax breaks, protection against inflation, and risk mitigation with solid investments in a range of properties. Expert guidance can be yours when you work with an experienced Baird & Warner agent. We’ll assist you with finding the right real estate investment opportunities that will grow your wealth and help you realize your dreams.

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