A lot has been said and written about the advantages of real estate investing. While not overflogging this topic, I wish to summarise this in these few captions:
- Cash flow
Cash flow is what’s left from rental income after all expenses. Real estate provides steady, predictable income and is not subject to volatile market fluctuations.
In spite of the downturn in the 2008 recession, real estate has a strong track record of appreciation and unlike stocks, has not experienced wide swings in value. The market is showing signs of a strong recovery and is returning to normal growth.
Through financing, you can acquire a much larger asset with a small amount of your own money. A 5% increase in value on a property bought with 20% down produces a 25% return on investment. Imagine trying to buy stocks, bonds or mutual funds with a 30 year fixed rate loan.
- Tax advantages
One of the unique advantages of real estate is that you can legitimately claim a tax loss even though you are making a profit. That is due to depreciation which allows you to deduct a portion of the value of the property on your taxes even if it is actually appreciating.
- Principal pay down
A portion of every payment goes to principal and contributes to equity until you own the property free and clear. Your renter is paying your mortgage for you.