This is a guest post by Robert Schroell

Real estate has long been heralded as one the greatest ways to build
wealth. You’ve probably heard the statistic that more millionaires are created from real estate investing than anything else. But, do you know what makes real estate investing so great? It’s not all hype. There’s four main benefits that investing in real estate offers and they’re outlined below.

Cash Flow Before Taxes

This is the most obvious benefit of real estate investing. Cash flow before taxes is similar to profit in a typical business, it’s simply what’s left over when you subtract expenses from revenue. As a general rule of thumb, cash flow is relatively low on most properties but often makes the difference between a moderate return on investment and a great return.

Principal Reduction

Most real estate investors finance properties with a conventional home mortgage. The loan principal is the value of the outstanding mortgage.

If the loan was on a personal home, that means the borrowers personally pays it back each month. However, on real estate investments that stay leased
out, the tenants themselves pay this money back and then some. The basic takeaway is that other people pay off the cost of a valuable asset for you!

Depreciation

Depreciation in real estate is a great thing! Most countries allow investors to write off a certain percentage of a property’s value each year, as if it’s “wearing out.” In the United States, this is down in equal increments over a 27.5 year schedule. It’s handled differently in other places but the benefit is always the same: you pay less in income taxes for the privilege of owning an asset! Starting to see why this is so great?

Appreciation

Every year, your property will appreciate in value. Sometimes this is just on pace with inflation but it’s often at a greater rate than inflation.
Wealth really starts to accumulate when you think about having appreciation and principal reduction working together on a property of a decade or two.

In many countries you can turn this value into tax-free cash in your pocket by periodically refinancing and pulling cash out.

Applying Your Knowledge

Where do these principals hold true? Everywhere! Real estate investing is one of those “simple but not easy” things. The concepts are sounds and easy to grasp but it’s tougher than it sounds. Get creative to really grow your wealth quickly. If you’re interested in the development side of things, I’d recommend investigating construction loans and learning the financing process. If apartments are more interesting, meet with some brokers and determine what markets are undervalued and find a property. The main takeaway from this article should be to do it now! If you don’t have the cash, start learning and saving.

Your future self will thank me.


KCLau
KCLau

Personal finance author and trainer

    3 replies to "Why Real Estate Investing Will Never Go Out of Style"

    • Ryan @ Planting Dollars

      This is the foundation of Real Estate, and although simple it’s some of the most powerful stuff out there. The average real estate investor who sticks with and properly maintains a debt / equity ratio in the US is worth about $3 million after 25 years. Powerful investment vehicle.

    • RockYourVote.net

      Why Real Estate Investing Will Never Go Out of Style…

      Four main benefits of investing in real estate…

    • sayeed

      Very good points on why property, you are absolute right, property would never go out of style….but for new comers into property business, it can be a hard knock if you don’t do your homework. So before jumping into property business, make sure there is educate research and training is taken. It can be costly mistake if you end up with wrong property.
      That’s right, one can end up with wrong property – no appreciation value, no rental value, building damages with high cost repairs and bad location.
      Anyways, you would always end up making money in property….9 out of 10 times.

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