Investing in rental property can be a safe way to earn money with less risk than with other investments. Here are some reasons why:
-
Real estate is less volatile and does not change as quickly as the stock market. Regardless of what is happening in the rest of the financial world, you are not going to lose 50% or more of your investment overnight. With stocks, if a company goes bankrupt, you can lose all of your holdings in an instant.
-
You can leverage your property investment more than other kinds of investments. For average investors, buying stocks with leverage is more risk than they like to take on. If you buy $100,000 in stocks, you are investing just $100,000. When it comes to investment property, you can use that $100,000 as a down payment on a property worth as much as $500,000.
Leverage increases your gains, even if all you gain is the property’s appreciation. Starting with a 20% downpayment, a property appreciation of 5% can net you total of 25% return. That’s better than your typical stock market portfolio is going to you for you. This is one of the most compelling reasons to get into real estate as an investment.
-
An inefficient real estate market means you can get buy property well below it’s real market value. Stocks are valued at exactly what the market calls for at any given moment. Real estate investments are not as liquid, and are frequently sold below their worth due to sellers being in difficult circumstances. With a little patience and luck, you can acquire instant equity with the right real estate deal.
-
There are tax advantages to owning rental properties that you cannot implement with stocks. In one example, the IRS permits you to depreciate the property, even it’s actually increasing in value. From this, you can counter the income you are earning through rental.
-
The value of your investment is under your own control. When you invest in stocks, you have no say in how the company operates or how you can improve your investment. Your real estate is tangible and you can take control over its improvement with painting, renovation or just increasing the rent.
-
You can get money back out of your investment with no taxes. Hard to believe, but if you have increased the property’s value, you can refinance your mortgage. The property has not been sold, so you won’t be paying any taxes.
-
The most impressive benefit of rental property investment is the stable security that you have, regardless of the financial environment around you. It increases in value, and you have cash flow from tenants. It’s a perfect arrangement.