5 Key Advantages to Invest in Real Estate

There are many advantages that come with investing in real estate, including generating wealthy via property appreciation, property taxes, building equity and hedging your assets against inflation, but it can also provide secure ongoing passive income for retirement and incredible tax benefits. Read on to see how real estate investing offers significant rewards and discover why it gives real estate investors a serious edge over those who opt to remain exclusively invested in the stock market.

Here are 5 key advantages to invest in real estate for you:

1. Competitive Returns

Perhaps most importantly, the real estate market offers very competitive returns compared to stocks and bonds. In fact, since 2000 real estate has outperformed stocks by about two to one, earning an impressive 10.71 percent annual ROI (Return on Investment), compared to a dismal 5.43 percent for the stock market. And when you invest in different types of real estate investment, you can enjoy the returns each year on the passive income generated by the property, invest that income in your family or more properties, in addition to 3-4 percent annual appreciation.

2. Stable Income

Whether you choose to buy a property and manage it yourself, or enjoy ongoing passive income from a totally hands-off investment, real estate investing remains one of the best ways to ensure that you will always have access to stable income you can really rely on that is completely protected from ongoing stock market volatility. In the long run, how you create your investment strategy can mean the difference between enjoying a secure retirement or dealing with serious stress during what should be your Golden Years, so it’s imperative to choose wisely!

"A key feature of real estate investment is the significant proportion of total return [that accrues] from rental income over the long term", Investopedia reveals. "This helps reduce volatility as investments that rely more on income return tend to be less volatile".

3. Portfolio Diversification

Most financial advisors will preach the importance of diversification and risk management to their clients, but not many will include some type of real estate as an essential part of almost every investment portfolio… And the reason for this oversight is actually quite simple: Because they most likely can’t make a commission on the buying and selling of property!

In reality, investing in real estate properties are the best ways to diversify your financial portfolio, as it provides a much greater level of security through real tangible assets, which counteract the more ephemeral (and often downright volatile) nature of stocks, bonds and mutual funds. Diversifying your financial portfolio is one critical step on the pathway to financial security, and it just might be the only thing that stands between enjoying a fabulous retirement and enduring the stress of inadequate funds when you need stable income the most.

"The addition of real estate to a portfolio of diversified assets can lower portfolio volatility and provide a higher return", writes Investopedia.

4. Tax Advantages

Invest in real estate also offers a wide variety of tax benefits, especially when you invest using money that is in an IRA, 401k or other retirement account, which is a smart and often under-utilized investment move that permits you to buy shares of a real estate fund and/or purchase investment property outright in a Self-Directed IRA account.

Then, you can collect ongoing income that’s either tax deferred until you retire and start taking mandatory distributions, or you can opt to pay the tax now instead, at what is most likely to be a much lower rate than it will be by the time you finally retire. But even if you just decide to buy a property outright and manage it personally, you can enjoy a wide variety of deductions, including depreciation and deducting operating expenses and maintenance, along with other tax benefits like paying short-term or long-term capital gains when you sell, which are usually at a lower rate than ordinary income tax.

"Not only is the cash flow received from your rentals not subject to self-employment tax, but the government also offers other tax benefits, including depreciation and significantly lower tax rates for long-term profits", writes Entrepreneur.

5. Hedge Against Inflation

Last but not least, investing in real estate protects you from the long-term negative effect of inflation, which all but annihilates the actual returns you get to collect from stock market investments. Real estate is considered to be a hedge against inflation because it is a “hard” or tangible asset. Also, home values and rents always increase over time, rising right along with inflation because - similar to oil and gold - real estate is a commodity that is naturally limited in supply, giving it an inherent intrinsic value that serves a basic need.

"Unlike stocks, and to some extent bonds [and mutual funds], an investment in real estate is backed by a high level of brick and mortar", writes Investopedia. "This helps reduce the extent to which the interest of the investor is dependent on the integrity and competence of managers and debtors".

Real estate presents an essential asset class that is both easy to understand and key to reducing risk while improving ROI (Return on Investment) in your financial portfolio. Whether you opt for passive income through a real estate fund or decide to go all in with a self-managed rental property, the payoff will be well worth the effort when all of these incredible advantages are put to use!

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