There are so many benefits to investing in real estate. Some are more obvious than others but it truly is one of the best investment choices you can make.
Everyone has different reasons for investing. Your “why” is a driving factor in deciding your business model but there’s something for everyone.
If you’re looking for long-term financial freedom, it would make sense to build up your rental portfolio so that you have cash-flow coming in each month.
For those who don’t want to work as much and might want to spend more time traveling or with their family, wholesaling or turn-key rentals are great paths to take.
Individuals up for managing and working through a rehab so they can reap the profits in the short-term are obviously perfect for fix-n-flip projects.
With a number of exit strategies comes a number of benefits to take advantage of.
Not all benefits apply to every type of exit strategy but we’ll point this out one-by-one.
1. Appreciation
The majority of items you buy depreciate as soon as the tag is taken off (or is driven off the dealership lot). Real estate is one of the very few things that you buy and it could appreciate the longer you own it. This makes rental properties a lucrative option as you’re most likely planning on keeping it for a good amount of years.
While the market goes through cycles, real estate overall has steady appreciation over time. There’s a continuously rising demand for housing in the US and with that demand comes rising prices for the supply.
As long as you buy at the right price and in the right area, you should steadily watch the property value increase over time for a rental property. The added benefit of your renters paying down the loan can make you a high percentage of profit over time.
2. Tax Benefits
This varies depending on your exit strategy.
You’ve got depreciation, potentially tax-free cash flow, the ability to do 1031 exchanges, and more. There are write-offs for interest paid on the property and additional expenses incurred for a rental property.
We aren’t tax advisors but you need to be looking into your possible tax benefits! It’s important to meet with an investor-friendly tax advisor to make sure you’re taking advantage of all the tax benefits that apply to you.
3. Cash Flow on Rentals
Rental properties are great for long-term investments. With a rental property, ideally you’re making a profit each month in cash flow per property which really starts adding up as you build your rental portfolio.
With rental properties, you’re having the tenants pay down your mortgage (which will be another benefit talked about further down), paying enough to cover your “added expenses”, and you still have cash leftover that’s pure profit.
Investing in just 1 rental property won’t make a huge dent in your goal for financial freedom but it is still making you money each month it’s tenanted.
With rentals, the more you have, the better. To scale the amount of rentals you have, it’s important to set up a property management company to handle day-to-day operations. This way it’s much more passive and you can concentrate on finding more deals.
4. You Have Control
You’re your own boss when you’re a real estate investor! You can create a business that is custom-built for your lifestyle.
Don’t want to work on Fridays? No problem.
Want to try a new marketing strategy this month? Sure!
Want to work from a beach sipping mai tai’s? Go for it!
It’s important to consider your goals and what your “why” is so that you know what to strive for. By doing this, you’ll be able to reverse engineer what you have to do each month so that you’re on target to meet your goals.
If you want to make a certain income each year, you can do the calculations to see how many deals and how much profit you need to see with them. Don’t forget to consider any advertising, rehab, and closing costs for this!
After you have your goals set, you can decide what deals to take and what type of exit strategy to use.
It’s all you!
5. Principal Paydown
This again is for rental properties but it helps solidify the trifecta that is cash flow, appreciation, and principal paydown. These 3 benefits aren’t found together in virtually any other type of investment.
With principal paydown, as long as you have a tenant in place, you’re having your mortgage payment paid down for you. Over time, your mortgage can even be paid off, purely from tenants paying their rent.
After this happens, your monthly cash flow skyrockets.
6. Leverage of Other’s People Money
The majority of real estate investors aren’t using their cash to pay for a deal in full. Many could do this, but they don’t have to and it allows them to scale their business quicker if they do use other people’s money.
Why is this so?
If an investor has $100,000 of cash reserves and put it all towards 1 or 2 deals, they’re limited to waiting until those deals have buyers and close before having cash to use again.
If you were to utilize a loan from a lender, you might put $10,000 into the deal of your own money and utilize the loan for the rest of the payment. You pay interest for a short period of time and you reap the profit from the deal (which can easily be more than your $10,000 investment).
Depending on your exit strategy, you may not need a long-term loan and don’t mind paying interest because it’s given you leverage to do more deals.
7. Positive Impact on the Community
We all need a little good karma to come our way, right?
When you’re buying a distressed or vacant property with the intent to rehab it or place a tenant in it, you’re improving the neighborhood.
A lot of the properties investors are looking at are properties that wouldn’t be for sale on the retail market (on MLS) because they need too much work and can’t be financed through traditional lenders. Some properties have owners who live out of state and aren’t putting the care needed into the property.
Most neighbors don’t want to live near a dilapidated property as it can negatively affect home values of properties around it.
When you’re buying an investment property, you’re in one way or another helping improve the quality of the neighborhood.
8. Massive Profit Potential
Hitting a homerun with a deal is what we all strive for but even some of the mid-range deals still bring in a decent profit.
Not every deal will bring in tens of thousands of dollars but overall, you have opportunities to bring in nice paydays if you know how to properly analyze a deal and offer a price that makes you a profit when you sell.
Rehabs normally have the highest return-on-investment (ROI) but you shouldn’t discount other exit strategies.
Getting Started in Real Estate Investing
If you’re ready to take the first steps to become an active real estate investor, do as much research as you can!
The hardest part is taking that first step to getting your first deal done. Once you’ve done 1 deal, it becomes easier as you know what’s expected. Don’t be that person who always says they’re going to start but never take action.
We have a blog on the “9 Steps to Your First Deal” that provide you with the most important steps to work on before going on your first appointment.
Real estate investing can change your life in ways you didn’t think possible.
Are you ready to take action?
