Investing in real estate can be a great way to indulge your entrepreneurial spirit while generating a steady passive income. While you may understand that this type of investment provides many benefits that investment options do not, such as helping to build equity for your future and boosting the local economy, you may also be wondering if you can actually afford to do it.
You are not alone in that fear. In fact, the majority of people between the ages of 18-44 stated they would be more likely to invest in real estate if there was a way available to make the process simpler. For example, if there was easy-to-use technology to assist investors in the process of investing in real estate and actually making a profit on that investment.
WHY SHOULD I CONSIDER INVESTING IN REAL ESTATE?
While the majority of people looking into investment opportunities often overlook real estate in favor of other asset-based investments or the stock market, the unique benefits of investing in real estate should not be ignored.
The truth is that real estate investing is not less profitable than any other investment opportunity. Real estate actually outperformed the stock market approximately 2-to-1 between 2000 and 2016, and is only getting better from there. Furthermore, residential real estate is a $29 trillion market and commercial real estate brings an additional $10 trillion.
None of these numbers look bad from an investment standpoint and it begs the consideration of real estate investing when in search of a solid investment opportunity.
When deciding what type of investment you should make, you need to consider what will give you the most return on investment and the stability of each option. Let’s dive into the benefits of investing in real estate:
- Generation of a passive income.
Passive income is any form of income earned from a partnership or other enterprise in which the person is not actively and directly involved. Investing in real estate and rental properties is a great option to earn that type of income because your rental properties will work even when you are not. If you are able to generate enough income through the rent you charge the tenants living in your investment properties, you will have the freedom and luxury to make money even while you sleep.
This is a great option for those who are retired but who still desire or need a steady income. Real estate investments, such as rental properties, provides a solid and reliable cash flow into retirement without having to put in a certain amount of hours of work each week in order to get paid.
- Predominantly favorable appreciation of real estate.
The value of real estate is increasing due to the rise of rental rates and the rise of the number of investors bidding on real estate. Rental rates are still continuing to rise because there is such a high demand for real estate, particularly industrial properties, and there are more investors bidding because of that high demand for industrial real estate.
- Build equity for the future.
Equity is “the difference between the market value of your home and the amount you owe the lender who holds the mortgage.” Most people understand that building equity for their future is important, but not many understand how to do so. Real estate investing allows you to build equity by paying off your mortgage more quickly, which, in turn, provides you with greater equity. With greater equity comes greater leverage to obtain more properties, leading to an increase in income.
Of course, there are risks with any investment opportunity and real estate investing is not immune to that. The risks people typically cite as a reason to steer clear of real estate investing often involve the perceived difficulty or cost of this investment option.
A few of the most common risks people perceive about investing in real estate include that:
- Investing in real estate is too difficult.
Over 70 percent of Americans believe that real estate investing is more difficult than investing in other assets. This opinion likely stems from the requirement of extensive research, inspections, loans, mortgages, and contract negotiations which are not necessary or applicable to other asset investments. When compared to the simple review of stock performance charts and deciding when to either buy or sell, real estate investing and the learning curve it presents can seem to some like the more difficult and time-intensive investment choice.
- Investing in real estate is too specialized.
Less than 38 percent of Americans believe that they would be able to successfully flip a house for a profit. This is understandable considering the amount of very specific knowledge and skills necessary, such as that relating to woodworking, electricity, and plumbing, to buy, repair and remodel, and resell a home.
- Investing in real estate is too costly.
When asked why they are less likely to invest in real estate, almost 70 percent of people responded with an answer relating to costs, stating that this type of investment requires more monetary costs than other options. While people may understand the high return on investment associated with real estate investing, they do not have – or are unwilling to spend – the amount of money needed upfront.
While this is certainly a valid concern, many people who cite this as their top reason not to become involved in real estate investing may be unaware that the start-up cost could be significantly lower than they realize when bank loans are factored into the equation. You do not need to pay the entire cost of the property out of pocket and you may not even have to pay for all of the repairs and remodeling yourself, depending on the size of loan you receive from the bank. It is very possible that you could put in a small investment and see a large return on that amount you paid out-of-pocket after paying off the mortgage and bank loan.
If you are interested in beginning to invest in real estate, but are not sure you can afford it, start by doing your research and asking yourself a few questions:
Are you able to get a mortgage loan in the amount you need to purchase a property?
Do you have enough income or savings that you be able to cover the mortgage if a tenant unexpectedly moved out or failed to pay their rent?
Are you willing to do the work necessary to repair and renovate your new rental property?
Are you ready to learn new things to make sure your investment is a success?
If so, investing in real estate is a great way to boost the local economy, earn passive income, foster your entrepreneurial spirit, and create equity for your future. Contact us today to take the next step forward with our knowledgeable and caring team here at Anderson Advisors at [email protected] or call us toll free: 800.706.4741.