WHAT ARE THE POTENTIAL BENEFITS OF REAL ESTATE INVESTING?

Although no investment can guarantee a return or even safeguard the principle, real estate has traditionally been one of the safest asset types for investors while still providing the opportunity for profits.

Real estate investing may provide a number of advantages not seen in other forms of investments. Here are a few of the advantages.

Leverage

One of the most compelling advantages of real estate investment is the possibility for investors to leverage their money several times. In other words, real estate investors may borrow money to buy a piece of property they couldn’t afford altogether, but then reap the full benefits of ownership. However, it is equally crucial to note that higher leverage entails increased hazards.

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Tax Benefits

Real estate may also provide a variety of tax advantages. Real estate earnings, for example, are taxed as capital gains, which are taxed at a lower rate than employment income. Furthermore, since the tax legislation permits you to depreciate your real estate every year, the tax basis of your investment assets may shrink over time. Additionally, if you generate cash flow through a rental property, you may be able to avoid paying self-employment taxes on those gains.

Control

Some individuals value the additional control they have over their assets as another benefit of real estate investing. When you buy stocks or mutual funds, all you have to do now is sit back and wait for their value to rise. You won’t have much influence in how those firms operate unless you’re a significant shareholder, which means there’s typically little you can do to immediately boost the value of your assets. When you invest in real estate, on the other hand, you have some control over almost every variable — gaining knowledge or negotiating skills to get a better deal on the purchase, improving the property, coming up with new ways to generate revenue (adding laundry machines to your apartment complex, for example), and so on.

There are several more advantages to real estate investment, including inflation protection, tax write-offs against other sources of income, and so on. We suggest that you visit our Knowledge Center for additional information on this.

Risks of Real Estate Investing

Naturally, no discussion of real estate investment would be complete without mentioning the hazards. Real estate, like any other investment, has the risk of loss. When you invest actively in real estate, such as by purchasing a residential property to rent out, you run the risk of vacancies, which will result in a loss of revenue on the property, as well as a real estate market downturn, which will lower your equity in the investment.

Passive real estate investments, such as holding stock in real estate-related firms, owning shares in Real Estate Investment Trusts (REITs), or investing in transactions via real estate crowdfunding platforms, all include hazards, which we’ll go over below. The value of these assets may diminish over time in the case of these investments. As a result, both active and passive real estate investments will need you to do your own due diligence and study prior to making a decision, just like any other sort of investment.

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