Is Real Estate a Good Investment?

Investing in real estate has always been a smart choice for diversifying one's investment portfolio and creating long-term wealth. Real estate is a tangible asset that can provide stable returns through rental income and property appreciation over time. Unlike stock market investments, real estate tends to be less volatile and can serve as a reliable source of passive income.

Furthermore, real estate offers various strategies for investors to explore based on their financial goals and risk tolerance. From traditional rental properties to real estate investment trusts (REITs) and real estate crowdfunding platforms, there are multiple avenues for individuals to enter the real estate market and benefit from its potential returns.

Why Real Estate is a Good Investment

Provided you invest in a property that you understand and can comfortably manage, real estate can be an amazing investment. Researching and doing your due diligence are major factors when any investment is involved. Meanwhile, there are several reasons why real estate can be a good investment, such as:

Inflation

Real estate prices tend to rise with inflation. The value of a property usually increases as long as you keep it maintained and have done your research on the area you are investing in. A great house in an up-and-coming neighborhood will likely rise in value, while a property in a forgotten town off the beaten path may never achieve the returns you’re after. Keep an eye on the market and the news — on what’s being built in different areas and what neighborhoods have been struggling.

Force Appreciation

It is possible to force appreciation. While properties often naturally appreciate about 3% to 5% a year in many real estate markets, you can make your investment more desirable and attractive to potential buyers or renters by renovating. Renovation can add value to your property — but be careful not to overdo it. You can end up tying up too much money in renovation and not getting your investment money back. Adding square footage is great but can be expensive and raises property taxes — so explore all your options. Low-key renovations can be great for adding value.

Updated bathrooms and kitchens are highly sought after, but make sure they appeal to the masses. Know what style is popular in your market to add the right look to your property for the best appreciation. Maybe modern is what’s selling or renting quickly in your market, not farmhouse chic. Things like a fresh coat of paint, a new roof or new appliances can boost value and appeal to potential buyers and renters.

Leverage

Real estate allows you to leverage your investment. Most people don’t have the cash to buy a house outright, so they put 20% down and take out a loan for the rest. You now have an investment property worth a whole lot more than you have spent on it. Once you have equity in the property, you can also use that to invest in your next income-producing property.

Tax Benefits

Many people don’t realize the tax benefits that come with owning property. Treating real estate as a business enables you to qualify for several benefits that are worth going over with your tax advisor. A few deductions include maintenance and repair costs, mortgage interest, real estate taxes, HOA fees and insurance. These costs can really add up, and it’s important to know that you can write them off at the end of each year.

Cash Flow

Cash flow is an important thing on any investor’s mind. Real estate investing doesn’t disappoint. Holding onto your investment and renting it out yields passive monthly income and a dependable cash flow. If your lease is for a year with a good tenant, you’ll be getting that extra money every month for a year. Then re-evaluate the market next year and see if a rent increase is possible. Having reliable tenants that help you pay down your mortgage and cover your taxes each month — all while leaving you with passive income — makes for a great investment.

Build a Legacy

Owning property is not only a great investment for you but also for your loved ones as it provides long-term security. Passing down an income-producing property or a property that keeps appreciating will leave your heirs with a great investment to continue earning from or cash out on. It could be a building block for their future investments or a windfall of cash when they need it most.

What Type of Real Estate Investment Is Best?

You can choose from many types of real estate investments. As an investor, you make decisions based on what will work well for you as far as what you have now, what you want in the future and what kind of work you are willing to put in.

Your Home

Your own home is a good investment in itself. You can sell it when the market is good. You can borrow against your equity. Renting it out is also an option for added cash flow if you decide to move in with a family member or your significant other or if you have extra space. If your house is in a great location and well kept, maintaining it as a rental or selling it at the height of the market are great ways to benefit from your investment — one that you also get to personally enjoy for years.

House Flipping

House flipping isn’t for everyone, but if done correctly it can be a real money maker. You need to spend money to make money, so make sure you have the cash to spare. Many of the homes are not in great shape and require a hefty amount of work to get them to be sale- or rent-ready. Professionals are needed too — electricians, plumbers, roofers, contractors and landscapers. If you are handy or have enough connections or are already a contractor, it can work and become an amazing side business.

Rental Properties

Many investors get into real estate investing through rental properties. Maybe you get your feet wet with one and see that it’s a relatively safe investment. So, you get another one or get a multifamily house next time. Having the monthly income coming in sets you up for more investments and a long-term cash flow. Just make sure to keep your properties well-maintained and located in desirable areas for quality renters.

Commercial Real Estate

Investing in commercial real estate takes place on a much higher level. Although it’s trickier and requires more money upfront, more risk can mean more reward. This type of investment is best for long-term investors ready to take bigger risks and access the potential to make big money. With better lease options than residential real estate, and usually much larger price tags, commercial real estate is an exciting investment opportunity.

Plots of Land

Land can be a great investment if you have the right connections. Knowing what the land is worth and if developers are interested in the area is ideal. Sometimes it can be a good idea to buy a plot of land if you see it at a great price and just sit on it.

REITs

Investing in Real Estate Investment Trusts (REITs) could work for you if you like being a passive investor. With a REIT, you invest in a company that handles everything for you. They own, maintain and rent out income-producing real estate for you and other investors. Then they return at least 90% of their taxable income to their shareholders in the form of quarterly or yearly dividends.

Real Estate Crowdfunding

Crowdfunding is another investment option. Various amounts of money from investors are raised— usually online — to secure financing for a real estate project. Investors buy equity in deals that look to be great investment opportunities. Depending on the investment, investors then receive a passive income or lump-sum payment if the deal succeeds.

Compare Real Estate Investment Platforms

With so many options for real estate investments, it can seem confusing and a bit overwhelming. Benzinga is here to show you the best real estate investment platforms for your investing success.

Get Good Potential Returns from Real Estate Investment

Real estate investing is a great way to earn a passive income because of the many opportunities for investors at any stage of their investing journey. Beginners and seasoned investors alike can find ways to build their real estate investment portfolio and increase their net worth.

Frequently Asked Questions