Real Estate, Real Estate Investing

The Advantages of Real Estate Investing

Different investments have their own advantages and disadvantages. The advantages of investing in real estate, include high returns, leverage, tax benefits and personal control over capital invested.

High Returns

Returns in excess of 20 percent are common for many real estate investments. Yields can even exceed this amount, reaching infinity, in those cases where 100 percent or more leverage-using borrowed funds to purchase property-has been achieved. More common, though, are realty investments that regularly develop 15 percent to 20 percent annual returns over the life of the investment. These profits reflect the opportunities that exist in real estate and when compared to average returns on other investments explain its popularity. Take into consideration the 2 percent and 6 percent return on savings accounts and its easy to understand the popularity of investing in real estate.

 

Leverage

Although stocks and bonds allow a purchaser to borrow up to 50 percent of the value of the securities real estate offers an investor the highest leveraging opportunities of any investment alternative. Many realty transactions require 20 percent to 40 percent of a property’s value as a cash down payment, while others have 10 percent, 5 percent, or even no down payment requirements. Some investors, after completing some highly sophisticated financing strategies, may even be able to enjoy the benefits of greater than 100 percent leverage and end up with cash in their pockets. High-leverage opportunities include transactions involving lease options, seller financing, subject-to transactions, joint ventures, syndication, wraparound mortgages, and other creative real estate ownership and financing arrangements.

 

Income Tax Flexibility

Real estate allows its owner a high degree of tax flexibility, due in large part to the application of depreciation allowances and the ability to deduct the properties operating costs from the gross income collected. Interest on loans may also be deducted, further reducing taxable income.

 

Control

Real estate investments provide the opportunity for a high degree of control. Purchase terms can be designed to reflect specific financial circumstances. Rents can be arranged to anticipate changes in the market. Various bookkeeping techniques can be adopted to reflect individual needs as they change over time. Property can be refinanced to capitalize on the equity accumulated and the investor usually retains the power to decide on when, how and to whom the investment will be sold under terms that satisfy the investors requirements.

 

High returns, leverage, tax benefits and personal control over capital invested are some of the many advantages of investing in real estate which has made real estate the investment of choice for many investors.