Real estate investment can be a very powerful vehicle for you to reach your financial goals; but in order to confidently build your wealth with real estate, you need to have the right information. One of the most imperative things you need to understand as an investor first and foremost is, “why real estate”.
1. A Safer Option
Real estate is comparatively a safer option than stock market-based investments, especially in today’s market. History shows that if you can buy and hold, your property is almost guaranteed to appreciate better than stocks, bonds or mutual funds. Of course, risk level varies based on factors such as the population growth and employment rates of the surrounding area, etc.
Leveraging is a great way to stretch your investment dollars. When you invest in real estate, you can borrow against your property. This means that you only have to pay the down payment for your investment, and you can mortgage the rest.On top of this, you will be receiving rental payment from your tenants, which can be used to pay off your mortgage.
3. Inflation Hedging
Real estate loses little value in periods of rising prices. It holds its value and purchasing power during inflation, which is paramount in today’s volatile economy. In the past, the rate of appreciation has been 2%-4% higher than the rate of inflation.
4. Tax Exemptions
There are many different tax laws you can take advantage of to increase the profitability of owning property.
• Taxes on Rental Properties
Net losses incurred on your property can be reclaimed. Also, certain incurred expenses can be deducted such as current operating expenses and capital expenses. Current operating expenses are day-to-day expenses (ie: utilities); capital expenses are long-term expenses for your rental property (ie: furniture) that last for more than a year. For capital expenses, there is a capital cost allowance. This allows capital cost to be deducted over time as items, like furniture, depreciate in value. Lastly, interest on mortgages, property taxes, bank loans or lines of credit is tax deductible on investment properties.
It is common knowledge these days that the world’s population number is growing with time and the growth rate is increasing each year. On the other hand, land supply is limited. With this in mind, following economics and the theory of supply and demand, housing prices have nowhere to go, but up as it is driven by demand.
Direct ownership is when you are legally registered as the owner of a unit or property. You have complete flexibility over the investment and assume all responsibilities that come with the property. The most important benefit when investing via direct ownership is that you, as the investor, are in complete control. You can control how well your investment performs and are not subject to the influence of an external party managing your investment such as a hedge fund manager.
Because you have complete direct ownership of your property, you benefit the most from the power of leveraging. For example, if a property’s value appreciates by 10% and you only paid 20% for your down payment, the return on your 20% becomes inflated to around 50%. It is also important to note that any growth in property value is tax-sheltered until you sell your property.