Investment opportunities are ample in today’s modern world. Diverse options like stocks, bonds, fixed deposits, mutual funds, and digital or cryptocurrency give investors endless alternatives for parking their money. However, of all these choices, real estate is still one of the most trusted, secure and beneficial avenues for long-term, profitable investment. One of the prime reasons for this is that real estate is requisite because everyone requires a place to live, and investing in real estate solves this problem while also securing the future. Owing to the turbulent global economy and record-high inflation, people place their trust in real estate compared to traditional assets like bonds and cash because of its tangible and inflation-resistant qualities.
Moreover, real estate ownership has long been linked with prestige, wealth, and credibility. Its appreciating value and universal recognition as a global asset make it a worthwhile investment option for many. Real estate’s value is ultimately a social construction: it is valuable because people agree it has been and will be in the future.
Reasons why People Choose Real Estate over Other Investment Options
Real estate is becoming quite popular worldwide as it is one of the safest ways to generate income. A survey conducted by Anarock Property Consultant in the first quarter of 2019 showed that 57% of people prefer to invest in real estate (The Economic Times, 2019). While other investment options are available, people tend to trust real estate more because some investments come with abrupt changes, whereas other investments operate in steady markets. For instance, the volatility of gold is moderate and changes with the price of the dollar. Stock prices are risky, erratic, and volatile. Whereas in the case of bonds, interest rate fluctuations, market volatility, and lower returns do not align well with people’s interests. On the contrary, real estate offers multiple lucrative opportunities and benefits, which are discussed below.
Access to Easy Cash Flow
Cash flow is the remaining net profit from a real estate investment after paying operating costs and mortgage payments. Real estate offers substantial potential for cash flow generation. A consistent monthly rental income is a great incentive for passive income and provides the investor with long-term financial security. Depending on the type of real estate investment, investors may begin earning cash flow immediately. For example, when a residential real estate investment is purchased, the property is completely renovated with a quality tenant in place. The investor may receive the first rent check at the end of the first month. In the case of gold, cash flow is not generated independently. Therefore it becomes difficult to analyse when it is a good deal.
People can force Appreciation
Over time, the value of real estate always goes up. The housing market always rebounds from bubbles and crises that cause home appreciation to slip. Prices always return to normal in periods of uncertainty. However, in other modes of investments, like the stock market, the risks of loss are ubiquitous. Moreover, unlike stocks or bonds, it is possible to force the real estate to appreciate. On average, real estate appreciates 3% to 5% a year without doing anything except maintaining the home (RoofStock, 2021). However, making improvements or repairs can speed up the rate of appreciation.
People Enjoy Tax Advantages
Real estate tax deductions can balance out income and lower overall taxes. People can get tax deductions on mortgage interest, cash flow from investment properties, operating expenses and costs, property taxes, insurance and depreciation (even if the property gains value) and other benefits. There are different ways to avoid losing money on a real estate investment, such as using a 1031 exchange to reduce capital gains taxes. Deductions may lead to a greater positive cash flow for the investor and a lower tax bill.
Low Entry Barriers
Investing in real estate is relatively easy. People only require a little money to invest, as many financing options are available in real estate. People only need a 20% down payment on a property, and a low-interest mortgage can cover the remaining balance (Larson, 2017). If the mortgage is not accessible, other options, such as non-recourse loans, hard money or even personal loans, act as substitutes.
Tangible Asset Value
Real estate can be used as a tangible asset to profit from various income streams while experiencing capital growth. Real estate’s high tangible asset value ensures perpetual security because its value will never decline as opposed to other investments like stocks with low or no tangible value or a new car which decreases in value over time. There will always be value in land and value in a home.
Acts as a Hedge Against Inflation
Real estate has long been regarded as one of the best inflation hedges because people can buy a home for less over time than they might pay in rising rent. The real estate market does not undergo sudden changes like the stock exchange, stocks, bonds, or the retail industry. In real estate, the investor spends the money on tangible assets directly getting involved with the said investment, which rarely loses appreciation or value. Also, real estate does not lose value to inflation year after year. Instead, it performs better.
Provide Better Returns
In real estate, the risk of loss is minimised by the time one holds onto the property. Improvements in the market improve the property value, which in turn builds equity. Real estate allows for greater investment control because a property is a tangible asset that can be used to profit from multiple revenue streams while also appreciating value. In contradiction, risks seldom change in the stock market, and numerous factors are beyond the investor’s control.
Today, investment is mostly interlinked with financial instruments that allow individuals or businesses to raise and deploy capital to firms. The capital generated is then utilised for growth and profit-generating activities. While the universe of investments is big, real estate has recently seen a surge in popularity in recent years. Uncertainty in the global economy, high inflation, and connectivity of real estate with wealth are some of the main reasons people park their money in real estate. Other benefits like passive income, tax benefits, diversification, and leverage also give it a hedge against its competitive investment alternatives like gold, stocks, bonds, etc. Lucrative opportunities and ample benefits from the real estate industry have gained people’s trust, thus luring them into making investments in this industry.
Larson, J. (2017, October 30). Forbes. Retrieved from https://www.forbes.com/sites/forbesrealestatecouncil/2017/10/30/top-reasons-why-real-estate-investing-is-so-popular/?sh=3f60f7ba7c53
RoofStock. (2021, July 8). GeekWire. Retrieved from https://www.geekwire.com/sponsor-post/8-reasons-real-estate-good-investment/
The Economic Times. (2019, October 3). Most investors prefer real estate, says survey. Really? Retrieved from The Economic Times: https://economictimes.indiatimes.com/wealth/real-estate/most-investors-prefer-real-estate-says-survey-really/articleshow/71347430.cms