As consumers have more disposable funds to invest, and as entrepreneurs find success with their business ventures, many search for the best investments for their profits. The decision making process may rest on risk tolerance, need for liquidity, and/or the amount of money available to invest.
One of the primary reasons to invest in real estate, such as rental property, is to take advantage of the appreciation over the long run. Historically, real estate appreciates in value, especially as a long term investment strategy.
Real estate is one of the few investment vehicles where using OPM (Other Peoples’ Money) creates leverage. By leveraging your capital, the increase in overall return on investment is generally higher.
Tax free cash flow is another reason for investing your money in real estate. As a result of depreciation and mortgage interest deductions, your cash flow should be tax-free…or at least tax deferred. The majority of the time, an investor will never pay taxes on their cash flow and can wait for capital gains on the sale of the property in the future.
Rental property is a forced retirement plan. Rental investments help offset the lack of self-discipline many people have in depositing money into their IRA or 401K retirement accounts. Rental investments are a significant commitment that you are required to commit to and maintain.
Most people don’t get rich overnight. It takes a long-term investment strategy and a diverse portfolio that includes real estate to increase personal wealth.
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