Real estate has what many other investments lack: It’s tangible, it’s durable, and the supply is limited. Real estate also offers better tax benefits, leverage, cash-flow, and appreciation than any other investment vehicle.
The income earned through an investment property, has minimal tax exposure. All expenses associated with the purchase, sale, management, repairs, supplies, and utilities are tax-deductible. But what sets real estate apart is the deduction for depreciation. Depreciation will offset income and create significant saving by deferring the taxes.
Another tax benefit of real estate is that upon selling the home and investor can use the proceeds to buy a similar home with without paying taxes on the gain. This is called a Like-kind exchange (or 1031 Exchange).
Very few investments can be financed by banks. Imagine a bank that will lend you money to buy share of publically traded stock? It’s unheard of. But, banks will lend money for the purchase of real estate investments. Borrowing allows an investor to conserve cash. And, since the income from the real estate will be more than the cost of borrowing, it will significantly increase the return on investment. This is called “Leverage”.
Smart real estate investments offer good cash flow. Typically we expect about 9% to 11% cash flow per year based on the total price of the investment.
Responsible real estate investing doesn’t bet on a rise in the housing market, or in the price of any specific property. But those gains are still common – and the real estate market is historically shown more stable and consistent appreciation than any stock or commodity market.