13 Reasons Why I Invest In Real Estate

by Gina DiMasi on May 3, 2020 · 2 comments

Why I Invest In Real Estate

Real estate is an asset class that you have without a doubt heard of. You have probably even heard of the phrase that 90% of the world’s millionaires became that way through real estate. Well, if that sentence isn’t motivation enough for you then I don’t know what will be. The point of this article is to take a high-level look at why I invest in real estate.

Before getting too far, I think it is important to look at some of the different types of real estate investments.

Types of Real Estate Investments

There are many types of real estate investments, here are just a few:

  • Single Family Homes
  • Multi-Family Homes (2-4 units)
  • House Hacking
  • Mobile Home Parks
  • Apartment Complexes (5 units or more)
  • Vacation Rental Investing (Airbnb Arbitrage, VRBO, HomeAway)
  • Commercial Investing (shopping malls, office spaces, storage units, etc.)
  • Real Estate Crowdfunding
  • Real Estate Investment Trusts (REITs)
  • Real Estate Syndications

As you can see, real estate comes in many different flavors. By doing your research, you can see which type of investment may suit you and your portfolio the best. Maybe you’re investing for cash flow or maybe you are looking to earn a lump sum in a short period of time, regardless, it is important for you to do your research prior to jumping in.

13 Reasons Why I Invest In Real Estate

The list of reasons why I invest in real estate grows longer each day. Quite frankly it is the ultimate investment in my eyes for several reasons.

#1. You have far more control over your return in comparison to investing in the stock market. If you want more of a return on investment, then you can raise rents or remodel the property to make it higher end so it sells for more money.

#2. It can be as passive or active of an investment as you’d like. For example, if you don’t want to manage tenants (which you shouldn’t) then you can hire a management company to do that work for you.

#3. The monthly cash-flow is incomparable. Right now, I am house-hacking a four-family home. I am living in the smallest unit and renting out the other three. While living here, I am making over $600 a month. That’s right, I am getting paid $600 just to live in my apartment. Then when I purchase my next property and move out I will make an even greater monthly cash-flow because I will be able to rent out the unit I am living in.

#4. Appreciation. It is said that on average, the real estate market appreciates (or increases in value) by 6% on an annual basis. Of course, there are off years and nothing is guaranteed however appreciate definitely is the icing on the cake when you are investing in real estate already making a nice return and get to enjoy the benefits of appreciation as well.

#5. Leverage is real. This means borrowing money to make more money. To do this in the stock market you need to have an incredibly high net worth but not with real estate. Lenders let you put down as little as 3.5% or even 0%. That means you can start making monthly cash flow to cover your expense and literally use little to none of your own money!

#6. Equity increases the longer you own. As you pay down your loan on the property, your equity (or the amount of loan you’ve paid off) increases. This equity can be used to buy more properties or even as a loan for other investments. Think about it almost as another bank. You are depositing money every month (sure for your monthly payment) and any money going towards the principal (the lender keeps the interest) is your bank account. So you are, theoretically, paying yourself.

#7. Fool-proof retirement plan. Most mortgages last for 30 years however they can be for 15, 18, or 20 years too (really the length of time depends on your lender). So say you buy a property today with a mortgage amortization of 30 years. This means in 30 years your property will be completely paid off and you will earn all of the cash flow from the property and will no longer have a monthly mortgage payment. You can literally set up your retirement to earn however much monthly cash flow you need by investing in real estate.

#8. It is incredibly tax-advantageous. There are some serious deductions allowed for real estate businesses. The interest paid on your mortgage, maintenance and improvements, home offices, phone lines, etc. If you run your business smartly, you can have almost all of your expenses deducted when it’s tax season. It is important though to make sure you are working with a CPA who is knowledgeable in real estate.

#9. Depreciation. The IRS lets you depreciate your property for 27.5 years. What does this mean? Well think of depreciation as an expense, the IRS is saying that as you own your house for longer and it becomes older it becomes less valuable however as we learned from #4 in most cases your house is actually appreciating. Therefore, with the IRS allowing the depreciation deduction you get bigger cash flow and report a lower income on your taxes. This overall generates a higher return.

#10. Taxes are less on real estate than the stock market. If you are flipping houses, as in buying and reselling in the span of less than a year then your taxes will still be high however if you are in it for the long haul then your taxes will actually be much lower than gains on other investments. Plus real estate has great hacks like 1031 exchanges that allow you to sell your property and reinvest the money into a like-kind property (including any gains) without paying taxes on that money. Pretty sweet deal if you ask me.

#11. Real estate can act as diversification and a hedge against inflation. Investing in real estate can help you guarantee passive income that your other investments may not be generating. Also, investing in real estate a completely separate asset class will help diversify your money so that if something happens in one market, all of your investments won’t be toast.

Additionally, it hedges against inflation because of the demand for a place to live. As long as populations continue to grow, the demand for a place to live will increase therefore resulting in an increase in rents and lower vacancy rates. We increase our rents with inflation every year. If our market we’re invested in experiences higher than average population growth we also make sure to increase rent in-line with that. 

#12. Generational Wealth. Have you thought about your legacy at all? I haven’t much either but real estate allows you to really put that though in place. You can buy properties for your family to hold for multiple generations to come. You could be helping people that you have never even (or may never even) met yet! By investing in real estate, maintaining ownership and keeping up with any required maintenance then you could be ensuring that your family will stay well-off for ages.

#13. Become your own boss. This is a major point for me. I want my primary job to be working for myself. I want to own enough real estate and have management companies in place so that my only job is making sure everything is running smoothly and maybe buying some more deals here and there. Real estate seriously allows this. Whether you want to be your own boss of your real estate company OR you are using the monthly cash flow to live off of while you start your dream company, real estate can propel you into financial freedom.

Don’t Fall Into The Typical Trap

Personally, I don’t consider owning your home as a real investment in real estate. Unless you are house hacking or doing a live-in flip, you really just bought a home for a sense of security (which isn’t a bad thing!). However, most American’s consider themselves real estate investors once they purchase their home. This is due to lack of knowledge. Sure, maybe they make some money once they sell their home down the line but they usually think they made this great return without factoring in all of the expenses they had to pay over the years like taxes, repairs, utilities, etc. Once you take expenses into consideration, most people barely breakeven on their investment.

Wrap Up

Whether you decide to start investing in real estate today or you begin to educate yourself on which method is the best for you, I definitely recommend that you begin looking into real estate sooner rather than later. It is the perfect way to diversify your portfolio, earn consistent monthly cash flow, and also set up generational wealth.

If you have any questions for me or if you yourself have invested in real estate, then let us know in the comments! 

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{ 2 comments… read them below or add one }

1 Dave May 8, 2020 at 7:24 am

Hi!

I just discovered your blog and am really enjoying it so far. I want to get more involved in real estate and would love some ideas on where to start and how to get setup for success. I currently have 1 property I am renting out. I am renting it for 1195 and the mortgage is 1023. I put an additional 500 a month towards the principal so I am technically losing money every month, but think that extra principal payment is smart for the long term. I am interested in buying a multi-family home possibly, but am scared about getting really invested in it. Thanks!

2 James Hendrickson May 12, 2020 at 3:07 pm

Dave,

I used to own about 4 units of real estate in Washington DC.

Paying off mortgage debt isn’t a bad move. That said, if you have any high interest debt like credit card debt or a high interest car loan, you’ll want to get that paid off first.

Second, if you’re wanting to look for a good book on how to grow your real estate portfolio, I suggest you check out William Nickerson’s How I turned $1,000 into $5 Million In Real Estate In My Spare Time. Its old, but its an excellent outline of how to effectively grow a DYI real estate portfolio.

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