toy wooden house and keys are on the black table

Real estate may be one of the best and wisest investments you make if you do it correctly. It may provide you with passive income and long-term wealth, but it can turn into a full-time job if you want to put in the effort as a hands-on operator. It’s particularly beneficial when compared to other investment options.

Are you thinking about investing in real estate? Use this guide to learn about the advantages and disadvantages of real estate investment, as well as how to get started.

Steady Income

The bulk of individuals invests in real estate for the consistent stream of cash that rental income provides. This steady stream of revenue is a powerful motivator to get started and purchase your first rental property. Depending on where you work, you might be able to earn enough money to meet your costs and generate some additional money on the side. Because demand is usually strong in urban centers or towns with colleges and universities properties in these areas tend to earn more money. You can create a consistent flow of income for a long time and even save for retirement if you choose the location carefully.

You don’t have to stop at one property. You may step up to the spot and invest in numerous rental properties at the same time to boost your steady cash flow and diversify your real estate investment portfolio.

If the burden gets too much for you to handle, you might hire a professional property manager. One thing to remember is that when it comes to real estate investing, location is everything. Don’t forget to pick a top location if you want to gain the full rewards of real estate investing.

Tax Benefits

tax papers are on the table

The tax benefits of owning a rental property are one of the advantages of investing in real estate. This is one of the primary reasons why so many people opt to invest in real estate. Rental income, for example, is not subject to self-employment tax.

Tax benefits are also available for depreciation, insurance, maintenance repairs, travel expenditures, legal fees, and property taxes, among other things. For their long-term investments, real estate investors are also eligible to lower tax rates.

The cherry on top!

Financial freedom

The advantage of real estate investing gives long-term financial security to investors.

When you have a consistent cash flow, the benefits of this investment will pay-off financially for a long time. Because of the property’s rise in value over time, owning a rental property may provide investors with a sense of security. This means that the value of your property will almost certainly rise as land and buildings appreciate.

However, there is no assurance that the value will continue to rise eternally. That is why it is usually a good idea to conduct extensive research on the area before signing a contract on the home of your dreams.

Real Estate Appreciation

If you’ve been investing in real estate for a while or are just getting started, you’re aware that it’s not a short-term strategy. The benefits of investing in real estate, on the other hand, include the appreciation of capital assets (such as land) over time. In other words, the value of your house will be much higher in 30 years, which is why investors are in it for the long haul.

Mortgage Benefits

The advantages of investing in real estate also extend to your renters. Simply said, the monthly rental revenue is sufficient to cover all of your costs, including your mortgage payments. In essence, your tenant is the one who pays your mortgage. That is why, at all costs, it is critical to keep your renters satisfied and minimize or limit the negative consequences of vacancies.

two people are reviewing papers

Inflation

One of the advantages of a real estate investment is that it provides a hedge against inflation. When inflation is strong, your rental income and property value both rise dramatically. Inflation is welcomed by real estate investors because as the cost of living rises, so does their cash flow.

Controlling Your Assets

Forget your dull 9-5 job, the best part about being a real estate investor is that you can be your own boss. You have entire autonomy and control over your real estate investing strategy, as well as your mistakes and achievements, just like any other business.

You make the decisions on which property to buy, who will live in it, how much rental revenue to charge each month, and who will manage and maintain the property as a whole. The advantages of real estate investments allow you to make your own decisions.

If you can’t put a lot of time into these investments then you may want to team up with professionals and let them do the work for you. Peoples Capital Group is here to help you accomplish that.

Diversify Your Portfolio

One of the other advantages of real estate investing is the opportunity for diversification.

The relation between real estate and other main asset classes is modest and in some conditions negative. This indicates that adding real estate to a diversified asset portfolio can reduce portfolio volatility and increase the return per unit of risk.

Building Equity and Real Estate Appreciation

When you pay off a mortgage on a home, you generate equity, which becomes a portion of your net worth. And as your equity grows, you’ll be able to use it to acquire new properties, increasing your cash flow and wealth more with time.

Rental revenue, any earnings created by property-dependent economic activity, and appreciation are all ways for real estate investors to benefit. Real estate values rise over time, and if you make a wise investment, you can benefit when it comes time to sell. Rents also have a tendency to climb over time, which might result in increased cash flow.

REITs

If you want to invest in real estate but aren’t ready to take on the responsibility of owning and maintaining properties, a real estate investment trust may be a good option (REIT). On major stock markets, you may purchase and sell publicly-traded REITs.

Many trades at large volumes, allowing you to enter and exit positions rapidly. REITs are required to pay out 90% of their earnings to shareholders, therefore their dividends are often greater than those paid by other equities.

liquidity illustration

How to Get Started in Real Estate Investing

House flipping, wholesaling real estate, and acquiring equity of a real estate limited partnership (LP) or limited liability corporation (LLC) are just a few of the many ways to invest in real estate.

Here are some real estate investment methods for real estate investors who are looking for a balanced combination of prospective risk and profit in their portfolios.

Purchase your first home

Rather than paying monthly rent to a landlord on a monthly basis, most investors save for a deposit on a primary house. Property values have historically risen over time, providing equity for a homeowner.

The value of a typical middle-priced home has almost quadrupled in less than ten years. That indicates that a home that cost $187,000 in 2011 is now worth around $356,000, provided it was well-maintained.

Single Family Properties

Another popular real estate investment strategy is to purchase a single-family rental (SFR) home. The ideal SFR might give an investor with nearly everything they want, including recurring rental income, long-term property value appreciation, and the tax advantages that real estate investors enjoy.

According to Arbor’s newest Single-Family Rental Investment Trends Report, vacancy-to-occupied rent increases have increased by 12.7 percent in recent years. For previously occupied properties, annualized monthly rent growth has averaged 8.1 percent since May 2020, compared to a historical average of 3.3 percent.

The occupancy rate of single-family rental homes is at 95.3 percent, the highest since 1994.

Real Estate Syndication

The term “real estate syndication” (sometimes known as “property syndication”) refers to a joint venture involving numerous investors. They pool their talents, resources, and finances to buy and operate a home they couldn’t otherwise afford.

Real estate syndications require you to actively network with other investors, ideally those who are interested in the same asset class as you. Developing contacts with like-minded investors will assist you in obtaining suggestions for reputable real estate syndication businesses with a proven track record in the sector.

As previously stated, a real estate syndicator will handle the majority of the heavy lifting, including finding the deal, structuring the syndication, and carrying out the business plan.

Real Estate Crowdfunding

Real estate crowdfunding platforms enable small-dollar investors to invest in large-scale real estate deals such as single-family rental houses, office buildings, apartment buildings, and shopping malls.

Unlike publicly traded REITs, cash that is invested in a crowdfund may be locked up for several years, and crowdfund shares are often illiquid and burdensome to swap. Another downside of real estate crowdfunds is that certain opportunities are only open to qualified investors with a net worth of at least $1 million (excluding their primary residence) or an annual personal income of at least $200,000.

REITs

REITs are real estate investment trusts that buy, own, and operate a variety of properties, including residential rental houses, student housing, commercial property, and special purpose real estate like mobile phone towers.

Shares of publicly listed REITs can be bought and sold on the internet, just like any other stock. One of the advantages of investing in a REIT is that it is mandated to payout 90% of its earnings as dividends to its shareholders. Residential REITs have an average dividend yield of 2.51% and a total year-to-date return of 36.29 percent, according to Nareit (September 30,2021).

Final Thoughts

Despite all of the advantages of real estate investing, there are some disadvantages to be considered. One of the most significant disadvantages is a shortage of liquidity (or the relative difficulty in converting an asset into cash and cash into an asset). A real estate closing might take months to finish, unlike a stock or bond purchase, which can be done in seconds. Even with the assistance of a broker, finding the right buyer might take several weeks.

Still, real estate is a separate asset class that is easy to comprehend and may improve an investor’s risk-to-reward profile. Real estate provides cash flow, tax benefits, equity development, competitive risk-adjusted returns, and inflation protection on its own. Whether you invest in actual buildings or REITs, real estate may help you diversify your portfolio and reduce volatility.

Individual real estate investing is unquestionably more difficult than investing in a group. You must still educate yourself, make sound judgments, and know where to invest your money in the vast world of real estate. It might be intimidating if you aren’t an expert in the industry. However, when you invest with Peoples Capital Group, you can be assured that your money is going where it should be. We’ll provide you with the most historically reliable investment choice money can buy using our knowledge.

Give us a call at 908-464-0400 to get started in real estate investing today!

Aaron Fragnito

Aaron Fragnito

Aaron has been helping people invest in Real Estate for over 10 years. He is a Co-Founder of Peoples Capital Group (PCG) a real estate investment and holding company. He is a full time real estate investor, as well as, the host of the New Jersey Real Estate Network and host of the Passive Cash Flow Podcast. Aaron has previously completed over 100 real estate transactions as a realtor and another 150 transactions in his current role as a real estate investor.

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