1. Generate Wealth & Build Equity
The first of many advantages of investing in real estate is the power of equity. When you own a house or piece of property, it naturally appreciates, or increases in value. As you pay the mortgage down and allow the house to appreciate, you build equity. Equity is an asset part of your net worth, making it one of the most straightforward ways to generate wealth. With equity, you have multiple options to generate cash flow and get a return on your investment (ROI). If you sell the home at the right time, you can get a large profit. On the other hand, you can use equity as leverage to increase your investment portfolio even further. With equity from one property, you can buy a rental property to generate monthly income and double your gains from building equity.
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2. Reliable Long-term Investment
Although the real estate market fluctuates, it is a stable investment that continually increases in value. Compared to the stock market, which is a highly volatile investment, real estate is not prone to frequent market swings or inflation. Properties don’t immediately change in price based on capital contributions or political volatility, making real estate a safe and stable long-term investment.
The charts below visually show how the stock market and real estate market fluctuate and grow over time. Notice the peaks and valleys the stock market graph displays. While the real estate graph has fewer ups and downs, it goes steadily over time.
Plus, real estate is a physical asset that can always be monetized. Owning real estate benefits the investor by providing ongoing income and tax benefits while the property increases in value. Renting the property provides a cash-on-cash return, and residing and reselling the property provides an ROI.
3. Protection From Inflation
While most people fear inflation, real estate investors don’t have to. Properties are rarely impacted by the effects of inflation, which is one of the most valuable benefits of real estate investing in current markets. Instead of being negatively impacted, real estate investments generally rise in value along with inflation. In fact, the graph below shows how home prices have stayed consistent along with inflation over the last three decades.
As a real estate investor, increases in your expenses will be relative to the increases in property value and income. If you are a landlord, you can maintain or even increase your cash flow according to inflation by adjusting how much you charge for rent. When it’s time to increase the price of rent for your tenants, make sure you know the laws and regulations, provide the correct amount of notice, and write a professional yet direct letter.