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Do you want to invest in real estate but think you don’t know enough to get started? It might surprise you to know that it’s easier and takes less money than you think to add it to your investment portfolio. And there are many good reasons to invest in real estate now. That’s especially true if want to build sustainable wealth.
Real estate investing includes so much more than buying a rental property and being a landlord. Sure, that’s a great way to create reliable income streams and build a fortune… but it’s just one possible path to take.
Even if you don’t have thousands of dollars and tons of time to invest, you can add real estate to your portfolio. In fact, you can start investing in real estate with less than $100.
Here are six wealth-building reasons to start investing in real estate today.
1. Real Estate Is… Real
Unlike the investments most people focus on—stocks, bonds, and mutual funds—real estate is real. You can see it, touch it, and stand on it. It doesn’t exist only on a financial statement or a stock exchange.
It’s real. And that means you have something of value even if the market value falls to zero… unlike a stock or bond that would be worthless in a crash. You can use real estate even if it has zero value according to the market. You can live there or turn it into productive space – like using it to grow food, for example.
And unlike paper investments, real estate supplies are limited – there’s only so much usable land in the world. (I’m not counting Mars here… at least not yet).
Plus, even indirect real estate investments like REITs (real estate investment trusts) are mainly based on physical assets. That lets them to hold a more stable value… even in a volatile market.
REITs are sort of like real estate mutual funds. Each share gets you partial ownership in a group of real estate projects. You get the steady income stream without all the hassles of being a landlord. Learn more about this easy way own real estate in my book Real Estate Investing 101.
2. Real Estate Diversifies Your Portfolio
When you’re working to build wealth, diversification can help you succeed. Diversification just means investing in a lot of different things, which helps reduce your overall risk of loss. And that’s especially true when the different pieces of your portfolio don’t act exactly alike.
You can diversify even more inside your real estate holdings. Because investing in real estate doesn’t only mean you have to own property. You can invest in real estate in lots of ways, and most of them don’t require a huge down payment.
Some of your options for real estate investing include:
- Residential rental properties
- Commercial properties (like office buildings and strip malls)
- Crowd-funded real estate
- REITs (real estate investment trusts)
- Real estate mutual funds and exchange-traded funds (ETFs)
- Mortgage-backed securities
- Mortgage debt funds…
- And more
Plus, you can also diversify your real estate investments geographically. So if one area gets hit by falling real estate prices, you’ll still have income-producing assets in other places that remain unaffected.
3. Real Estate Adds an Inflation Cushion
Way back in 1980, the median rent across the United States was $243 a month. Ten years later, that expense jumped to $447 per month. Fast-forward to 2021, and median monthly rent has hit $1,302.
That’s inflation: paying more money for the exact same thing. And it’s bad for tenants… but good for landlords and other real estate investors who can shield themselves from the inflation effect by passing it on to their tenants.
Real estate also tends to increase in value – slowly – over time. Typically, the longer you hold on to a piece of property, the more it will be worth… another layer of protection against inflation.
4. Real Estate Provides Income
Real estate investing offers up multiple paths for earning income. Some of those paths deliver money monthly, like rent. Others bring in money periodically, like farming or other productive use. And some paths pay off over decades, like buying a property in 1970 and selling it in 2021.
Those income paths let you use real estate to balance your portfolio and stabilize returns with steady income. Plus, you get the added benefit of steady long-term growth. Win-win.
And if you’re thinking that the stock market always outperforms real estate… it doesn’t. Sometimes, even though it’s less risky and volatile, real estate can deliver better returns than stocks – especially over the long haul.
5. Real Estate Creates Real Wealth
When it comes to building true and lasting wealth, real estate makes a strong foundation. It’s a
proven wealth generator, providing what you need to build a secure, income-generating nest egg.
This single asset class offers steady cash income, growth through property value appreciation, and the opportunity to transform relatively small amounts of capital into much larger assets through the use of leverage (meaning you put a down payment on a property and getting a loan for the rest).
Consider this: With $20,000 to invest, you can buy $20,000 of stocks or bonds… or put a $20,000 down payment on a $100,000 property. Which seems like the most direct path toward wealth?
6. Real Estate Investing Gets Special Tax Benefits
Real estate investing comes with a lot of tax advantages. So when you invest in real estate, you get to keep more of your earnings than you would with other types of investments. That gives you the double benefit of increasing your net worth and leaving you with extra cash to buy up more income-producing assets.
Examples of these special tax benefits include:
- Depreciation, an expense that costs no money but you still get to deduct it for income taxes
- Unique tax swaps (called 1031 exchanges) that let you put off paying tax on gains when you sell properties
- Tax-free cash flow produced by leverage (borrowing money)
- No Social Security or Medicare (FICA) taxes on rental income
And these are just a few of the ways the tax code specifically benefits real estate investors. Plus, these advantages build up over time, so you have even more capital to invest in building long-lasting wealth.