Why Invest in Real Estate?It is important for you to first understand 'Why you should invest in real estate?'. Because once you understand 'Why real estate investment is the best vehicle of wealth creation' then 'How to of real estate?'is the easy part. It is the 'Why' that will provide you with the motivation and energy to do real estate. Without understanding the 'WHY' you will never succeed. “It’s tangible, it’s solid, it’s beautiful. It’sartistic, from my standpoint, and I just love real estate.” Donald J. Trump
You have to understand how real estate compares with other investment avenues such as savings account, shares/stocks, commodities & businesses.
Rate of Return
Return on investment (ROI) is definitely one of the most important criteria you should consider whilst taking an investment decision. However simplistic calculations based on yields can be very misleading.
Yield by definition is the ratio of the annual income generated by the investment divided by the dollar amount of investment.
Rate of return should be considered after taking into account the risk involved,whether the investment is inflation adjusted, is there any capital growth on the principal invested, does the investment provide tax benefits and is it possible to leverage your money to get higher returns.
Real estate investments when compared to bank deposits are definitely superior in terms of yield and capital appreciation. Saving in bank do not provide hedge against inflation and your money depreciates in value over a period of time.
Shares and stocks are perceived to have higher returns than property and provide hedge against inflation but they pale in comparison to real estate when you take into account the leveraging power of real estate investing and tax advantages of property. It is possible to buy properties by using other people's money (OPM) with returns that are 20 or 30 or 50 or 100 percent or more per annum.
Investment Risk
Banks are perceived to have the least risk when compared to other investments but of late this confidence has been shattered due the high rate of failure of the banks.
Stocks carry a much higher risk because their values fluctuate on a minute to minute basis. Stocks also do not go up in value and business disasters like Enron can have a nasty effect on your stock market wealth plan.
Investing in businesses can be very profitable if you know what you are doing. The failure rate of new start up businesses is around 80%. In business you invest in people and ideas which are usually not as solid as bricks and mortars.
Property on the other hand goes up in value slow and sturdily. This is proven by the record of past 300 hundred years where property values have consistently doubled every 8 to 12 years. In the market crash of 2008-2009 when the stocks nose dived to 50% to 80% of their value and wiped out the fortunes of millions of people the real estate prices went down by 5% to 15% of their value.
If you wish to understand risk then just check what banks are willing to lend their money for. Are they willing to loan money to buy paintings,antiques, diamonds,mutual funds, CDs, commodities, stocks & businesses? If so to what level of funding? For properties banks will easily lend to 70 or 80 or 90 percent and in some cases to even 100 percent of the value.Banks are the most risk averse institutions and if they are willing to invest in real estate up to 100% of value then they consider the investment risk to be extremely low when compared to other investments. You should take your cue from the banks. Read this article to learn more about how you can reduce investment risk through real estate investment.
Buy Below Market Value
You must have heard the saying that 'you make money when you buy' and not at the time of selling. Is it possible to buy stocks or diamond or commodity or gold below value? When you buy $100,000 worth of stock you pay $100,000 in cash.
Investing in real estate after gaining a bit of knowledge, you can buy properties that are 10 or 20 percent or even more below market value. There are many reasons why people sell their properties below value. You can amass great wealth by simply buying property below market value.
Increase Value of Investment
Can you increase the value of your stock or bank deposit by tinkering with it? There is simply no mechanism by which you can increase the value of your stock or any other investment because you do not control them. However you can greatly increase the market value of your investment property by spending a small amount of money on making cosmetic changes or applying for change of use of the property.
Financial Leverage
No one has ever become rich without applying the power of leverage. Archimedes rightly stated in 200 BC that 'Give me a lever long enough and a place to stand and I will move the entire earth.'
The financial leverage in the investment world comes from the use of OPM or Other Peoples Money. In real estate investing we buy property with 10% down and yet we control 100% of real estate.
For example let us say we buy a property of $100,000 with $10,000 down payment. Let us assume that rent from the property covers the mortgage payments and the out goings. If the price of the property moves up by 10% during the year the market value will increase to $110,000. This means we would have made a profit of $10,000 on our investment of $10,000. This is a 100% return on investment and was made possible only because of the power of leverage.
Our return on investment would have been infinity had we bought the property with no down payment. This kind of financial leverage is only possible you invest in real estate. But before you rush to buy your property with no money down you must under how leverage works. There is no greater leverage in life than the leverage of knowledge.
It is extremely difficult to finance other types of investments such as stock and businesses because funding is always an issue. Banks love property because of the low risk and capital appreciation associated with real estate.
Leverage can be used for quick wealth creation. If you know how to use leverage you do not need large amount initial capital to start your real estate investment portfolio.
Control over Investment
When you invest instocks you have no control over your investment until and unless you have the controlling shares in a company. You can hand over your money to a fund manager but you still do not have any control and are at mercy of the competence or incompetence of the fund manager.
Shakespeare rightly said 'fool and his money are soon parted'. There are many Madoff's in this world who are waiting to rip you off your hard earned money.
Invest in real estate and you have full control over your asset. You are not at someone else's mercy who can part with your money. You control the shots and have peace of mind.
Real Estate Offers Exceptional Tax Advantages
The biggest expense in your lifetime are the taxes you pay to the government. If you add up the Income Tax, GST, Customs duties, Excise Duties, Service Tax, Capital Gains Tax, Stamp Duty, Estate Duty, Property Taxes etc you will find that you pay in excess of 50% you earn to the government. Most people are not even aware of how much they pay because some taxes are indirect taxes.
Rich are rich because they pay little or no taxes.If you are smart you can do the same and fund your life style andinvestments by saving on the taxes.
Real estate tax laws differ from one country to another. However, universally applied tax principles throughout the Western world hugely favor those who invest in properties. As opposed to other investments you can run your property investment as a business and claim back depreciation, interest payments and other expenses as a part of your business. As this is a subject by itself you will find details of tax planning in other sections of this website.
It is sufficient to say that tax refunds from real estate investments provide you with additional cash flow to buy more investment properties.
Incase of stocks and shares you have virtually no tax benefits and have to pay tax on interest and dividends received.
This unique advantage makes investing in real estate very attractive when compared to other investment opportunities.
Monitoring Your Investment
The whole point of investing is to create multiple streams of passive income that can fund your life style. There is no fun if you have to monitor your investment on an hourly or day to day basis which is the case with investments instocks, foreign currency or commodities the values of which change constantly. You have to watch these investments like a hawk if you have to succeed.
Property prices tend to move very slowly, smoothly and constantly with minimum amount of fluctuations. This makes it very easy to monitor your real estate investment.
My philosophy is very simple. I buy real estate at 10 to 20 percent below market value. I then make improvements to increase the value of the property and make it cash flow positive. I then hand over the property to a competent property manager. Once I complete a project I move on to the next one.
After the initial investment of time and energy there is very little of my personal involvement in the property. There are at times months or even years before I need to actively intervene in a property as it runs on auto pilot. I treat every property as an individual business center and source of passive income. I set up my properties in such a way that they require virtually no monitoring from me apart from going through the monthly statement of accounts.
Invest in real estate and you will have the most passive and hands free of all the investments opportunities.
Fluctuations to National Average
The price of each stock fluctuates on its own merit and there are numerous imponderable variables that dictate the price of a stock. It is therefore very difficult to monitor every stock in your portfolio because each one is very different from the other. It requires a genius of Warren Buffet caliber to beat the market averages consistently. Even expert fund managers struggle to keep up with market averages.
In the case of real estate fluctuations of any one property relative to the national average are very low. It requires very little expertise to beat the national average for property and increase your return on investment.
Real estate investment is very forgiving to mistakes. It is the simplest, most reliable , most consistent and hassle free vehicle to convert even a little bit of financial intelligence into cold hard cash.This is the reason why you must invest in real estate.
“Buying real estate is not only the best way, the quickest way, the safest way, but the only way to become wealthy.” Marshall Field(1906)
------------------------------------------------------------- Do you have a question regarding 'Why invest in real estate?'Click Here to submit your Question
Why Property?It is the basis of all wealth, the heritage of the wise,The thrifty and prudent. It is the poor person’s joy and comfort, It is the solace of the widow, the comfort of old age, It grows and increases in value through countless days. Its possessors learn to believe in it It is the foundation of banks and Yet, it is so common that thousands, Unknown Video - Robert Kiyosaki and Dolf De Roos Exlpain Why Invest in Real Estate
Do you agree that Investing in Real Estate is the best way of creating wealth?Share your reasons for investing in properties and our visitors will love it! 
Return from Why Invest in Real Estate to Home Page
|
