Investing in Real Estate

This hub was created to give you a general overview of the benefits of investing in real estate. Investing in real estate can be very risky, but only if you don't know what you're doing. On the flip side, real estate can provide large returns, provided you have properly and thoroughly educated yourself. Hopefully, this hub will help in that process and leave you feeling more informed and ready to take the next step.

The absolute best thing about real estate is that you have almost complete control over your investment. As long as your decisions are within the boundaries of the law, you can change your property as you see fit, rent it out to who you want, charge whatever price you want, etc. With real estate, you can physically see how well your investment is doing. You don't need to search through pages of financial information and there's no fear of hidden or under/over estimated numbers. You can drive to your property and inspect it, you know you will have a steady stream of income if your tenants sign long contracts, and you can insure your property against anything that occurs out of your power. These benefits are only available with real estate, and you will very rarely find them when investing in stocks.

Another great benefit to investing in real estate is the fact that properties offer four sources of income, whereas stocks only offer two. The four sources are:

• Capital Gains - The income received when your property appreciates in value. Although current market conditions aren't favorable for capital gains, almost any property that is held for a long enough period of time has the potential for increased value. To maximize your future capital gains, it is very wise to know when to purchase a home, at what price, and at what location. These characteristics make or break a home, and as such are beyond the scope of this hub.
• Rent - The income received over and beyond what the property's cost. Once you add together your mortgage, property tax, insurance, and any other monthly costs, and subtract that from the price you charge your tenants, anything left over is your rent income. This is pure cash that you can spend now. It is the ultimate dividend stock because you get paid monthly and you can choose how much you get paid! Of course, you can't just charge any price for occupying your property, but more often that not renting prices will be above and beyond your property's costs.
• Depreciation - The income received by paying less in taxes. Depreciation is an accounting term used to describe the depreciating value of assets. If you have ever lived in any sort of building, you know that it eventually falls apart, becomes outdated, etc. To make up for this cost and to encourage new developments, most governments deem property depreciation to be tax deductible. This means you can make more money, and pay less in taxes by owning real estate! It's truly a win-win.
• Amortization - The income received when your tenants pay down your mortgage. Although you may have to place a down payment, most properties that you invest in will be partly financed by a lender. The lender will charge you monthly payments, which will consist of part interest and part principal. When you include this in your tenant's monthly bill, you will be essentially transferring your loan payments to your tenant! This means that over the course of time, your tenants will be paying the loan off for you, leaving you with a property you received for practically nothing! This is the ultimate income received from investing real estate, and the prime incentive for choosing this option.

The best way to maximize your returns from investing in real estate is to use as much leverage as possible. Leverage is basically making other people's money work for you. By financing your property, you are using less of your own money, and reaping more of the profits. For example, if you bought a $1,000,000 property which produced for you $10,000/mo. in profits, you would be making a 1% return each month. However, if a bank financed that same property for a $200,000 down payment, you would instead be making a 5% return each month. That's five times your money! Discovering how to use leverage in your investment deals is a proven way to becoming very wealthy.

The last benefit of investing in real estate is the many savings in taxes that you can accumulate. The U.S. government wants to encourage growth in real estate and provide homes for it's citizens, so they offer outstanding deductions and low tax rates to individuals investing in real estate. I am not an expert on this, so it would be wise to check with an accountant or lawyer to find out just exactly what you can save. This link may help:

Real Estate Tax Advantages

The only true negative result of profitably investing in real estate is the amount of time and effort it takes to educate yourself and gain experience. It may be hard at first, especially since many lenders aren't financing under such loose qualifications anymore, but a determined investor won't take that for an answer. Doing your homework and gaining real world experience is the only way to make profits from real estate. There are no shortcuts in real estate; time produces rewards. Take the time to learn, and you won't ever regret your efforts.