WHY IS THE REAL ESTATE MARKET SO LUCRATIVE?

Every investment that works out and generates returns can look like an easy no-brainer in retrospect. It’s thus important not to draw big conclusions from small anecdotes. That being said, investing in real estate does offer compelling risk adjusted returns. It is one of the best ways to build wealth and has long been a part of many investment portfolios. Furthermore, the advent of technology has led to the development of multiple online platforms (for example stproperty) catered for the real estate market and real estate investment. This is making it easier than ever for even novices to invest in commercial real estate.

The key, however, that allows you to take advantage of all the investment opportunities in real estate is first and foremost, self-education. When you start with a better understanding of everything involved, you will have better insight into decisions and this helps make a difference in terms of both risk and returns.

Of course, there are many ways to turn a profit with real estate. Read on for more in-depth understanding on why the real estate market can be lucrative.

1. Rental income

Rental income is one of the main sources of profits that investors are targeting when buying a rental property. Homes are something everyone needs as long as there is a viable pool of tenant, based on the sacrosanct laws of supply and demand. More and can’t be made or built, so demand and prices will always be on the rise. Thus, you can’t really go wrong with investing in a rental property.

2. Buying low and selling high

You can viably turn an instant profit if you are able to acquire properties for lower than its actual market value. Unlike stocks, which are always bought and sold at market value, real estate is more amenable to price fluctuations. Additionally, never underestimate the power of real estate appreciation. Often, buying a property at a low purchase price, improving the property and flipping is the key to many investors’ affluence.

3. Increasing equity

With every loan repayment that you make for a rental property, you will be increasing your equity. For example, your tenants will be paying you rent, and that rent can go towards debt repayment. Thus, you will be increasing equity without any costs coming out of your pocket, and still be increasing your net worth each month. If you do elect to perform improvements to your properties, this adds towards their market value and thus towards your equity.

4. Leverage increases returns

Leverage, or the strategy of using borrowed money to generate returns on an investment, is a viable method of generating significant profit and building wealth. Of course, this assumes that the return on the value invested in the property is higher than the interest you are paying for the borrowed money. For example, even if you only put 10% down payment on a property, you will still be receiving rental income based on 100% of the property value. If the property is worth $100,000 and you charge $800 in rental while paying $600 in loan repayments and fees, you will be generating a $200 profit with $10,000 down payment. That will be $2,400 per year, which is a 12% return on investment on your down payment.

5. Renting smaller units

Investing in real estate gives you multiple different options of deciding on how you want to make your money. For example, you can either rent your units as a whole, or rent them out separately. If you rent out three rooms to three different tenants, chances are you can charge more in total than if one family was renting the whole place. You can also take properties apart and divide them into smaller units as well. This flexibility allows for endless options.

6. Tax benefits

Residential real estate, like all tangible assets, is viable to depreciation. However, unlike in other business expenses, depreciation is a paper loss. This means that you won’t be spending money or losing money, but will still be counted as an expense. This expense can offset your taxable income and save you some money on your tax bill. Thus, depreciation actually shelters your income from tax. this example is just one of many other methods of getting tax deductions on real estate investments.

7. Profit from extra cash flow on a refinance

Depending on the economic climate, you will be able to refinance the property at better interest rates. This helps you lower your loan bill payments will the rental income on your property remains the same. This means that you will be generating more cash flow each month. You can then use this extra cash flow in many ways, for example, as a cushion for maintenance, to save up for deposits for a new property, or just have more passive income to go into your banks.