10 reasons I love real estate investing

Investing in real estate has proven to be a fruitful addition to one’s portfolio. Some opt in to be more hands-on while others find their time is better spent elsewhere. Here I’m outlining 5/10 reasons why I like real estate as a means to achieve my financial goals. 

1.     Tangibility:

Real estate is a physical asset that holds intrinsic worth, which helps the value hold better. An investment into real estate also makes you the CEO, which allows for you to make improvements, cut costs, increase rents, find better tenants etc. These factors can improve the value of property, whereas this is not the case with financial assets that are paper-backed. As a bonus, you’re also able to visit the property in person and see the true benefits of your investment. Whether you’re investing in apartments, or storage, you’re satisfying a need out there for someone! 

2.     Stability:

Real estate has shown to be less volatile than the stock market. This chart compares the performance of real estate and stocks using the NCREIF and S&P 500. NCREIF is an index that was established to serve as a non-partisan data collector for the institutional real estate community whereas the S&P 500 measures the market value of 500 stocks representing all major industries. You can see that the stock market fluctuates drastically, while real estate has generated relatively constant returns throughout the same period of time.

3.     Inflation-hedge: 

According to the us gold bureau, the dollar has fallen nearly 92% since the creation of the federal reserve. In comparison, real estate can keep pace with inflation in the form of rental rate increases or appreciation. 

4.     Variety:

Whether you have room for growth, and want to take on something more risky, or need a safer and more reliable investment, real estate has several options that you can choose from. Here are just some of those: 

§  Multifamily 

§  Land 

§  Short-term rentals

§  Storage

§  Mobile Home parks 

§  Real estate debt/lending

5.     Truly passive: 

Partnering with someone you can trust is key. A good track record, alignment and conservative leverage are all good indicators of a responsible sponsor. You can preserve wealth while still being able to dedicate the time you have to items you actually want to do, rather than fixing toilets or dealing with calls at 3 am. 

6. Sanity:

This one is silly but true. I will never forget the time my tenant called me at 10 pm to tell me the city didn’t take out her trash or in tears because the toilet was flooding the bedroom. Plus, my expenses for 2023 are below:

Is the juice worth the squeeze? I think I’ll let the professionals handle it. Once I factor in my mortgage payment and rental income, the cash-on-cash return last year was less than the typical passive investment option.

7. The wealthiest are using it:

Ultra-high net worth families, and those who manage their money, are increasingly looking to real estate to incorporate in their investment portfolios. These investors have almost half of their investments in alternatives, and this is projected to increase by 32% through 2027. Real estate is among this new wave, proving its increasing desire to be in the portfolios of the wealthiest individuals and approved by those who advise them.

8. Diversify your generational wealth:

Equity is a powerful tool that can be used for future generations. Equity is built by the property appreciating, or increasing in value, while the mortgage, or debt, is being paid down. This is then used to calculate your net worth, making it an attractive wealth-building tool that you can pass down to your heirs and create financial stability for future generations. This is in addition to the passive income you receive year-over-year on any cash flows generated. With income, you can go on vacations, pay down monthly expenses or save for other financial opportunities and goals. 

9. Tax Efficiency:

The income that you receive from real estate can also be tax-free. Depreciation is a component in the tax code that allows you to offset the income that you generate from a property to lower your taxable burden. With any investment, you also must pay a capital gains tax upon sale. There are programs such as 1031 exchanges and Opportunity Zone Funds that you can utilize to defer or eliminate paying capital gains taxes. In both instances, more money stays in your pocket. I’ll take that any day!

10. Refinance:

Speaking of tax-efficiency, another powerful tool is the ability to return money without having to pay taxes on it. When you refinance a property, you can take money out if the value of the property has increased. The tax code allows for this distribution to be tax-free. You can do this as many times as you want, leaving more money in your pocket. Other traditional investments require you to pay taxes on anything gained over the year, taking money out of your pocket and to Uncle Sam. 

Real estate is all around us. It’s where we like to entertain ourselves, where we eat, where we work, and where we seek shelter! In markets that have a lot to offer with good fundamentals, I don’t see real estate going anywhere. The trick is to then ensure you’re partnering with the right sponsors, picking appropriate markets and ensure the underwriting is reasonable.