9 Reasons Why Real Estate Is One of The Most Profitable Investments
We have witnessed throughout our investing careers that the majority of individuals work hard for their money but don’t quite know how to have their money work hard for them. The wealthy have a different strategy.
The wealthy have their money work hard for them. They’ve cracked the code. But what exactly do wealthy individuals do that so many others don’t?
Let’s explore this further.
9 Compelling Reasons To Invest In Real Estate
One of the biggest secrets that the wealthy tap into is the incredible power of real estate. Real estate has the ability to generate passive income and provide a path toward building wealth. Every dollar invested in real estate works for you in several ways:
- Cash Flow
- Passive Income
- Equity/Principal Paydown
- Tax Benefits
- Hedge Against Inflation
- Long-Term Security
#1 – Cash Flow
The greatest benefit to real estate investors is being able to collect cash flow from their real estate investment properties. This can be achieved by collecting the rental income from the investment property each month from the tenants occupying the property. The monthly rents (and any other income from the property) less the expenses such as mortgage payments that the landlord is responsible for will generate the positive cash flow that the property owner can enjoy each month.
So, let’s say you are interested in long-term rental properties. You decide your initial investment will be a single-family home that you plan to rent long-term. You put as much money as you feel comfortable putting in as a down payment of $50,000. The purchase price for the rental property is $200,000, and your monthly mortgage payment would be roughly $1,000 per month. Now let’s say that the market value for rents in the area for the kind of property you have is $2,000 per month.
Ok, so you collect $2,000 per month in rental income, minus the mortgage payment of $1,000, and say you have to pay another $500 for your expenses each month such as property taxes, property insurance, reserves, etc. That leaves you with $500 cash flow each month. It may not seem like a lot of money, but we’re going to go into the different ways that you earn so much more than just this $500 a month.
Once you see the numerous ways that real estate makes and SAVES you money, you will understand more why it is such a good investment, and why a savvy investor will almost always have these lucrative investments as a part of their investment portfolio.
#2 – Passive Income
Passive income is exactly what the words imply. It is investing and then receiving income passively through dividends, interest, or distributions by way of stock market investing or mutual funds investing or property investments such as real estate investment trusts (REITs) or real estate syndication opportunities in apartment complexes, office buildings, industrial complexes, retail centers or a variety of other commercial properties.
Passively investing in these various investment vehicles allows you to collect income without having to perform any day-to-day activities managing the property or managing the fund, or managing the investment in any way.
It’s a “set it and forget it” way of earning income that allows you more freedom to live your life on your own terms while still trying to achieve the highest return you can.
#3 – Leverage
Using the example we talked about earlier of putting a down payment on a residential property of $50,000 to purchase a $200,000 asset is a great way that property investors can get started growing their wealth. The great thing about leverage is that the bank contributes to helping you build your wealth through leverage. You come up with the $50,000 and the bank comes up with the rest ($150,000) so that you can create wealth over the long run.
The income you’re earning is based on a $200,000 asset even though you only invested $50,000 into the investment (25% of the investment). The bank contributed 75% to your investment so that you didn’t have to invest any more of your own money.
All you are responsible for is paying the mortgage and interest payments, and the profits or cash flow are yours to help you build your nest egg. You don’t have to share it with the bank – it’s all yours. That’s the power of leverage. The power of leverage is one of the best ways to generate wealth, and the wealthy understand how to use it to do just that.
#4 – Equity/Principal Paydown
When you invest in real estate whether it is residential real estate or a commercial property, you will likely have tenants paying your mortgage by way of the rental income received every month. When you pay down your principal balance with the lender, you are effectively increasing your equity with each payment to the lender. This is why almost any type of real estate investing is a great way to build wealth.
Other people pay your debts so that you can increase your wealth and eventually if it is a long-term buy, then the tenants pay for the property outright over time. As the debt is paid down on the asset, you receive a higher return incrementally. This is why real estate is the best investment for individuals looking to create legacy wealth and long-term security for themselves and their families.
#5 – Appreciation
Let’s say that you invest in a commercial syndication that purchases an apartment building, which is one of the best types of real estate investment one can partake in – in our humble opinion. And as is most often the case, real estate prices tend to rise with time historically because of capital appreciation. This means that your money is working for you without you having to do anything at all.
Appreciation in these profitable real estate investments is one of the easiest ways to increase your wealth over time. One major factor to consider, however, is to never count on appreciation when trying to determine if an investment is a good deal. Appreciation is not guaranteed. Always invest for cash flow – first and foremost to ultimately protect your capital.
#6 – Tax Benefits
When you invest in real estate, you get the benefits of depreciation and mortgage interest deductions, and cost segregation (an accelerated depreciation method in the commercial space) as well as an array of powerful tax deductions that can really offset your earned income and help you to keep more of what you earn.
Through the IRS tax code, these tax breaks are given to real estate investors because the government wanted to incentivize individuals and corporations to provide much-needed housing options to the public.
Through these tax advantages, investors will often show paper losses, while actually making a profit through cash flow. These paper losses play a significant role in helping to offset an investor’s other earned income, which is a major reason real estate is such a great investment.
#7 – Diversification
Investing in a tangible asset such as real estate is the best way to diversify your investment portfolio if you’re currently only investing in paper assets such as equity REITs, ETFs, stocks, and mutual funds.
Also, by investing in a variety of profitable types of real estate investments such as a multifamily apartment syndication, or a mobile home park or a storage facility, or an industrial complex, you are spreading out and mitigating your risk while increasing the possibility of higher returns long-term.
#8 – Hedge Against Inflation
Real estate historically has been an excellent hedge against inflation for this very reason, as the price of goods and services increase, so do rents typically. Even as we are experiencing exceedingly high inflation rates at the time of this writing – 6.8% – the highest annual inflation rate since 1982, there has been an increase in rental rates to keep up with inflation. In fact, in some areas of the country, there has been a 20% increase in rents.
The other way that real estate is a hedge against inflation is the fact that as the price of goods and services increases, so too does the price (and value) of real estate.
#9 – Long Term Security
It should come as no surprise 90% of the millionaires and billionaires became wealthy in large part by way of real estate. Commercial real estate, in particular, is a great way to build long-term wealth and security because of all of the reasons mentioned throughout this article and should be a part of anyone’s investment strategies.
With every investment into real estate, you have the amazing opportunity to take advantage of leverage, cash flow, equity, appreciation, diversification strategies, and extraordinary tax advantages. This is true regardless of what type of real estate investment you pursue whether it’s single-family residential properties or commercial syndications or anything in between. Our advice: conduct your due diligence and just invest and see where it takes you and your dreams.
Ready to Learn More?
The best way for you to learn more about passive investment opportunities in commercial real estate syndications is to join the PCRP Passive Investor Club.
Through the PCRP Passive Investor Club, you’ll get a priority review of all the deals we offer. We’ll work with you to determine your investing goals and then present you with the best deals to meet those goals. We’ll then guide you every step of the way as you invest in those deals.
So if you’re ready to start investing passively in institutional-grade, commercial real estate in fast-growing, climate-resilient markets in the U.S., join the PCRP Passive Investor Club – IT’S FREE! – and get started on your path to EARN PASSIVELY and LIVE ABUNDANTLY!
If you would like to know more about what we do and how it may be of value to you, please reach out to us anytime. We’re always happy to help!