Real Estate: The Secret Ingredient for Achieving Financial Success

What’s the secret ingredient for financial success and sustained wealth creation? The answer is real estate investment. With its myriad advantages over other forms of investment, real estate is an essential component of a sound financial strategy. In fact, did you know that 90 percent of the wealthiest individuals in the U.S. built their wealth through real estate?

What makes real estate such a desirable investment? Here are ten of the most important advantages of owning real estate that illustrate why it’s the cornerstone of wealth creation.

#1: Steady income stream

Real estate investments, particularly rental properties, offer a steady stream of income, providing long-term financial security. This income can be significantly higher than dividends from other investments. Benefits include:

    • Regular monthly rental payments
    • Financial stability due to owning a tangible asset.
    • Ability to live in your investment as your primary residence and receive rent to reduce the mortgage and other ownership costs.

#2: Appreciation potential

Unlike many other investments, real estate often appreciates in value over time, making it an excellent wealth-building asset.

    • Real estate usually keeps pace or exceeds the inflation rate making it a powerful hedge against inflation.
    • You can grow the value of your real estate assets by making improvements to the property and/or increasing rents.
    • Having multiple units as opposed to a single unit offers greater opportunities for profit upon sale.

#3: Tax advantages

Real estate investors enjoy numerous tax benefits, including deductions on mortgage interest, property taxes, and operating expenses. Other benefits include:

  • Depreciation deductions.
  • Capital gains tax benefits.
  • 1031 exchanges that allow you to depreciate your property, exchange it for a new property, defer your taxes, and start your depreciation schedule all over again.

#4: Portfolio diversification

Real estate is a tangible asset that can diversify your investment portfolio and provide a powerful alternative to the stock market.

  • There are multiple ways to invest in real estate from rental properties, commercial, industrial, REITs, crowd funding, debt funds, deeds of trust, etc.
  • The returns in real estate are more stable and predictable because they take place over time, not over minutes or hours as is often the case in the stock market.
  • You have the security of owning a physical asset, not just a stock certificate.

#5: Inflation hedge

As inflation increases, so does the cost of living, and consequently, rental income and property value – this is a win-win for real estate investors.

  • Rents rise with inflation.
  • In previous downturns, unless there was something unusual about the property or if it hadn’t been properly maintained, residential rents stayed stable and did not decrease even as property values fell.

#6: Leverage

Real estate allows the use of leverage – the ability to use borrowed capital to increase potential return on investment.

  • If you’re purchasing 1-4 units, you can get in with a VA loan with zero down payment or an FHA mortgage with as little as a three percent down payment.
  • Your potential for higher returns is much greater as compared to the risks of using leverage to play the stock market.
  • Leverage means you can also acquire more property since you don’t have to put as much money down and there are programs that use the property as the basis of qualifying for a mortgage, not the borrower.

#7: Control over your investment

Unlike many other investment types, real estate gives investors a significant amount of control over their investment.

  • Influence over property value (through improvements).
  • Choice of tenants.
  • Control of property management strategies.

#8: Cash flow

  • Real estate can generate significant positive cash flow after expenses, providing additional income.
  • Regular, positive cash flow
  • Cash flow generally increases over time as rent, property values and inflation increase.

#9: Build equity

As you pay down your mortgage, you build equity – a valuable asset that you can leverage for other investments as well as for your financial security.

  • As you pay your mortgage down, your equity increases over and beyond any other increases due to appreciation, inflation, or increased rents.
  • Ability to leverage equity for further investment.
  • Build increased wealth over time.

#10: Real Estate Investment Trusts (REITs)

REITs allow individuals to invest in large-scale, income-producing real estate, providing an entry point for those who may not have the capital for direct property investment.

  • Easy access to real estate market.
  • Potential for regular dividends.
  • Diversification of real estate portfolio.

With all these advantages to owning real estate, it’s easy to see why it has consistently been the engine for wealth creation for 90 percent of the American’s most wealthy individuals. It can be your path to wealth and security as well.