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If you’ve never invested in real estate – and the house where you live doesn’t count – it’s time to think about adding it to your portfolio… especially if you’re interested in building lasting wealth.
Real estate investing covers 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 your 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 could get started with 15 minutes of time and less than $100.
Here are six profitable 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’s not an idea like bitcoin or stock options. 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 other planets or moons here… at least not yet).
Plus, even indirect real estate investments like REITs (real estate investment trusts) are largely 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 – investing in a lot of different things – can help you succeed. Combining different types of investments 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… even though that’s probably what popped into your head. You can invest in real estate in lots of ways, and most of them don’t require a huge down payment.
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 2019, and median monthly rent had skyrocketed to $1,078 per month.
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 2020.
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.