Did you know that over 90 of the world's millionaires invest in real estate real
estate is an excellent way to build wealth and in this video i'm going to
share with you five reasons you must invest in real estate right now and if
you're new to the channel then hit the subscribe button below for more
life-changing content reason number one passive income streams
one of the reasons why you must invest in real estate right now is that it can
generate passive income because of this fact it is an excellent way to generate
additional income outside your 9 to 5 job without having to increase your
weekly working hours moreover it can also help you gain financial
independence and retire early a major misconception that most people have is
that it is difficult to make money from real estate although it requires some
time effort and energy depending on how you manage your properties making money
from real estate is not as difficult when you know what you're doing
so how does real estate earn you passive income the first way you can make
passive income from real estate is to rental properties rental properties tend
to either be inhabited on a long or short-term basis
long-term would be the typical living tenant situation with short-term looking
more like someone renting a room or house through airbnb you can generate
regular income from rental properties by choosing a good location because that is
one of the most important factors your guests will factor in their decision to
rent your property as a result having property in more desirable parts of town
increases your chances of having a lucrative rental property that is being
rented on a perpetual basis examples include central areas that are not far
from major highways allowing for ease of transportation also a neighborhood that
has basic infrastructures and amenities such as good schools hospitals
supermarkets and restaurants is a good location for a rental property the next
step in making passive income with your property is looking for tenants before
you dive into the rental world you need to know that not everyone will be an
ideal tenant some of the information that may help you decide whether
attendant is right for you or not is your employment and criminal history as
well as their credit score another way to make passive income is through
short-term rentals like airbnb this is commonly used by those looking for
vacation rentals such as tourists and business people and just like long-term
rentals location also plays an important role in the success of short-term
rentals properties that are located in areas with tourist attractions may bring
you more money than those that are not furthermore it is important to know that
since it is a short-term accommodation you may have to provide most of the
basic things to make your guests comfortable finally you can invest in
real estate and make passive income even if you do not have enough money to buy a
property real estate investment trusts or wreaths are similar to how mutual
funds work it allows you to buy shares of companies that are invested in real
estate and still make some profit reason number two reliable appreciation
another reason why you must invest in real estate is because of a reliable
appreciation the theory of supply and demand is one of the most important
concepts in economics because it influences the price of goods and
services this theory is also important to understand why real estate has a
reliable appreciation let's start by refreshing your memory on elementary
economics the law of demand explains that the higher the demand for a product
the higher the price the world population is constantly on the rise
while available and continues to decline what this means is that there is a
constant demand for a finite resource which is the land therefore the price of
real estate is expected to grow steadily over the years and that makes it a good
investment for anyone seeking to build their wealth on the other hand the law
of supply explains that the lower the supply of a product the higher the price
this law explains the reason why scarce products are usually expensive because
there is a limited supply from the earlier explanation about how land is
limited and the population is constantly increasing you can see that there is a
limited supply of land and that means the price will continue to increase
right now i'm going to give you practical examples of how this is
applicable in a real life situation let us assume that you buy a property in a
location that is developing for instance a location where a large manufacturing
company is being established this will result in employment opportunities for
people and would be a convenient place for that company's workers to live with
time there will be other facilities like schools for the children of these
employees hospitals and shopping centers eventually more and more people will
want to live in that area and the demand for land will increase remember that the
supply of land is limited therefore you can expect the price to increase
also there are other factors that drive the demand in supply of investment
properties areas with growing employment opportunities usually witness a
continued increase in demand and hence an increase in the price of properties
in such locations more so properties that are located in areas with low crime
rates easy access to good roads and infrastructure experience high demand
and steady appreciation reason number three diversification
diversification is one of the most important keywords when it comes to
investing hence the reason why the saying don't put all your eggs in one
basket is very applicable when it comes to asset allocation one of the several
benefits of real estate and what you must invest right now is diversification
diversification in investing is a technique that reduces risk by
allocating investment across various financial instruments and industries in
other words diversification is a method of minimizing loss by spreading risk
across different assets it can also mean investing in different industries that
react differently to the same situation generally people understand this to some
extent and they may even invest in different stocks however the stock
market is becoming more correlated for instance bad news about the aviation
industry may affect the prices of stocks in said industry and the stocks of some
other related transportation companies however such news may not have any
impact on real estate because they are unrelated because real estate has a
lesser correlation with other asset classes like stocks and bonds it offers
a perfect opportunity for those seeking to diversify their investment portfolio
another reason why real estate is a good investment for diversification is that
it is a hedge against inflation the value of real estate typically increases
during inflation for example you may be able to increase the rent to account for
inflation you also have some level of control over real estate you can improve
the quality of a property by renovating it and that may allow you to rent it out
for a higher price or increase the selling price
reason number four tax breaks real estate has an advantage to tax
breaks that most other investments do not have this is one of the reasons why
most investors find real estate attractive you may be able to keep more
of your money by following some of the tips you will see from this video to
reduce your tax payment firstly profits made from real estate are referred to as
capital gains and they are treated differently than employment income
simply put capital gains are taxed at a lower rate compared to employment income
another tax benefit that you have is that you can delay paying tax on capital
gains after selling a property this is known as a 1031 exchange if you sell a
property you can reinvest the profit on a similar property that has the same
value or greater within 45 days and close a transaction within 180 days
another way to enjoy a tax benefit from real estate is by depreciating the value
of an asset for a period of time for tax in real estate the value of the land is
usually about 15 percent of the total value while the value of the property is
85 percent you cannot depreciate the land but
you can depreciate the value of the property for example you can appreciate
residential properties for a period of 27 and a half years and commercial
properties for 39 years that means that if you have a property of two hundred
thousand dollars you may be able to depreciate eighty-five percent of the
property for twenty seven and a half years that is you can appreciate a
hundred and seventy thousand dollars which translates to six thousand one
hundred and eighty one dollars every year improvements that add value done to
the property can also be subjected to depreciation for example if you fix the
roof for eight thousand dollars you can as well depreciate the value for 27.5
years and it is equivalent to 290 every year the value of depreciation every
year will be deducted from the annual income before tax furthermore you can
reduce the amount you pay as tax through deductions some of them include the
amount you paid on managing your property such as the cost of repairs
utility costs and insurance property tax legal fees closing costs and association
fees you may also be able to deduct the cost of running your business from a
home office other deductible costs include marketing and advertising
expenses office equipment and supplies as well as salary if you employ a
professional to manage your property for you to qualify for these tax deductions
you must properly document all of your expenses reason number five leveraging
the power of a mortgage the last reason why you must invest in real estate is
that you can harness financial leverage by borrowing through a mortgage house
prices are quite expensive and it may discourage you especially if you do not
have much money however you can invest in real estate by borrowing funds from a
lender to be able to purchase an investment property without having to
cover the entire purchase yourself this means that there is little excuse for
not investing in real estate the only money you need is typically the down
payment most lenders require you to pay at least 20 percent down on the value of
the property while they front the remaining 80 percent the advantage of
this is that you may be able to get access to better investment with lesser
money for instance if you have a hundred thousand dollars you may be able to
purchase a more expensive property with a higher return on investment you may
also be able to use the same amount to buy multiple properties that are of a
lesser value meanwhile there is this debate on whether it is good to borrow
money to finance a house or pay cash you may be able to avoid interest
charges and monthly mortgage payments by paying cash however would you be getting
the most return for your money for instance if you purchase the rental
property by borrowing through a mortgage you may be able to finance the loan from
rents paid by your tenants and even start making a higher percentage return
let's assume you paid a hundred thousand dollars for a property and make eleven
hundred dollars this rent and your monthly expenses are 450
this brings the net profit to 650 per month or 7 800 per year this is
equivalent to a 7.8 return on investment however if you purchase the same
property with a 30-year mortgage at 5 and put down 20
after you deduct the loan payment of 429.46 from the net profit of 650
you will have 220 dollars and 54 cents per month or
2646.48 cents per year in pocket this is equivalent to a 13.2 return on
investment although investing in a property with a loan involves more risk
you can see that you can obtain a higher roi when you leverage other people's
money to sum it up investing in real estate is very profitable and an
excellent way to diversify your portfolio hey it looks like youtube
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