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A seemingly age-old question asked by many investors, “Should I invest in the stock market or real estate?” More and more investors have begun tiring of the volatility of the stock market and switching to real estate investing. In this blog, we break down the top five reasons to invest in real estate rather than traditional stocks and bonds.
Why invest in real estate?
- Cash flow
Every month a rental property is tenanted, the owner of that property receives positive cash flow. While there are slight risks associated with renters paying their rent and vacancy potential, positive cash flow is generally a reason investors choose to invest in real estate over traditional stock options.
- Tax deductions
At Grace Management, we have investors who have chosen investment real estate over stocks for the tax deductions alone. The IRS allows investors to factor in deprecation of the real estate over time as an expense item. It’s certainly advised to use an accountant or tax professional when filing, but the benefit to depreciation is that even if you as an investor have brought in cash from the property, at the end of the year you may be able to leverage depreciation to show a loss. Depreciation is just one of the tax deductions real estate investors are able to take advantage of.
Investors can capitalize on equity with leverage. Put simply, every month a tenant pays their rent and the investor applies those funds to the mortgage, they are actually increasing the equity of the property and their own net worth as they pay down the principal on the loan. Every month that the mortgage is paid down on the property, the equity increases. One our property investor clients with rental properties in Loveland and Erie is focused on the tenants paying off his mortgage over time through their rental payments.
Historically, appreciation presents a great case in favor of investing in rental properties. Real estate values generally continue to appreciate over time. Long-term investors are able to capitalize on appreciation as they hold onto rental properties.
Real estate is a tangible asset. Rather than stocks, real estate is more than a piece of paper being pushed around. Many real estate investors like the control they have over their assets not offered in traditional stocks and bonds.
Over time, these five aspects combined almost can’t help but to propel an investor into financial independence. We have worked with thousands of investors in local property management markets like Thornton and Westminster since 1978 to help them reach financial independence by coaching them to be cautious and not over-leverage.
Have questions? Give us a call, 303-255-1990.