6 Reasons Real Estate is an Excellent Investment

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I want to tell you a short tale of three brothers. Their names are Ron, Don and John. They came from a middle-class home, none having greater advantages than the others.

Ron works in construction, building houses. He puts in eight- to 10-hour days and earns about $60,000 a year.

Don became a real estate agent. He makes good commissions though it’s not consistent. He works five- to eight-hour days, but often must work weekends. In a good year, he earns $90,000.

John bought a house and rented it out. With the regular cash flow, he was eventually able to buy more houses, then some apartment buildings and even invest in some commercial real estate. John makes $500,000 a year and will likely be a millionaire within a few years.

There is nothing wrong with working a job—unless you desire to be wealthy. John recognized the excellent investment potential of real estate and used it to build up significant income. The work he does increases his assets, which continues to increase his income—income that will continue to flow through his life, into his retirement years.

Don and Ron must work more hours. In exchange, they receive more money for that period.

You Don’t Have to Be a Landlord

If you’re put off by the idea of that you will have to become a landlord and all that goes with that (screening potential tenants, handling leaking water heaters and clogged toilets, etc.), don’t worry, there are ways to invest in real estate, such as turnkey rental properties, that don’t require your direct involvement with the property or the tenant but produce immediate cash flow.

It is also possible, if you buy property directly, to eventually turn over the direct involvement to a property manager for a percentage. That frees up your time and preserves your cash flow.

And there are plenty of benefits to real estate investment, too. Here are six of them:

1. It’s Consistent

Real estate has an excellent reputation as a relatively stable and consistent investment. Between 1978 and 2004, real estate investments provided an average return of 8.6% annually. Are there investments that pay higher returns? Yes, investing in the stock market, for instance, can yield much higher returns but it’s also significantly more volatile and risky.

2. Income 24/7

When you own income-producing property, you quite literally make money while you sleep. Even if you are actively involved in the management of your properties, you may not work every day but your tenants pay every day. And with strategies like turnkey rental properties (in which you purchase a home in need of no repair, with a tenant and property manager already in place), increasing your properties won’t necessarily increase your workload but will definitely and immediately increase your income.

3. Tax Advantages

With real estate investing, the income you earn will likely be tax-free much of the time, due to depreciation and deductions you may be entitled to for mortgage interest. You can’t say the same about stock market or other equity investments, where you’ve got to pay significant taxes on dividends and interest payments.

4. Retirement Benefits

Owning rental property produces cash flow. Plain and simple, it you hold onto rental property, you are ensuring future cash flow. Expand your number of properties and you expand your monthly cash flow. Social Security can’t be relied up and, sadly, many people are not very good at saving money. But in the long view, if you continue to invest rental property, you are guaranteeing your comfort and standard of living in your later years.

5. Hedge Against Inflation

With income-producing real estate, your earnings are based on the rent your tenants pay. Increases in rent correspond to increases in inflation (and leases usually contain a provisions to that effect) but can also happen when a lease expires and a new one is initiated. Bottom line, while inflation may reduce the value of currency, driving prices up, property owners often make more money off their investment in inflationary environments.

6. Degree of Control

As the owner of an income-producing property, you have the ability to increase the value—and thus the income-producing potential—of the property. For instance, you can improve the landscaping, beautify the interior and/or exterior and rent to a higher-quality tenant at an increased rate. You have a degree of control, which is something you can’t really say for other kinds of investments.

Last Word

Those are some pretty strong reasons to invest in real estate. If it all seems a bit distant or unreal to you, the best thing to do is read as much as you can on the subject. Sites like this one, as well as Creative Real Estate Online (http://www.creonline.com/) and Investopedia (http://www.investopedia.com/) are good places to begin. Get familiar with real estate terms. Flood your mind with real estate-related ideas and strategies. Doing that, it will shortly become more and more real to you. You will start to understand more. You will be able think and talk the language. It will become more real to you. And you will be closer to taking action.

And there's more to come...