20 Reasons Why Real Estate Is a Great Investment
Hey there! Are you ready to put on your real estate learning cap and discover why real estate is one of the best investments to put your money into?
First I want to say that I’m so glad to see your interested in learning more about real estate and thank you for stopping by today.
I’ve been learning real estate since I was 5 years old when I could understand what my father did for a living as a real estate agent.
It’s grown on me ever since and allowed me to build a decent net worth well above the average for my age group.
I used my knowledge of real estate to acquire my first investment property when I was 20 years old and my first apartment building at age 22, and have scaled up ever since getting bigger deals.
So let’s start with the basics as I’m excited to go back to square 1 and help you learn!
You can also skip below to the list of 20 reasons if you don’t care to spend a few minutes reading the basics of real estate.
Why is Real Estate Important?
Consider the fact that people need places to live and businesses must have places to operate.
Therefore, real estate is a vital resource that affects all people.
Land is restricted to the land that exists on this earth and as the population continues to grow over time, demand for a place to live or operate a business will increase while the supply of land will remain the same.
Thus, land is an appreciating asset that will always go up in value (and so will your taxes).
The structures built on top of the land can be depreciating assets that break down, so the government let’s you calculate annual depreciation expense to write off against your taxable income, help save you taxes.
Everyone Has to Make Decisions Related to Real Estate
At some point in your life you’ll come across real estate decisions that need made.
These could include the following:
- Should I buy a house or a condominium or should I rent an apartment for my personal living residence?
- What neighborhood should I live?
- How should I pay for the real estate? What type of financing?
- Should I use a real estate broker or try to sell my own property?
- How do I structure a sales contract to get the best deal?
- How do I determine which is the best property to invest in?
If you’re a business executive you’ll face real estate questions and decisions similar to the following:
- Should my company build new real estate or buy existing?
- How should my company finance or purchase the development?
- Should my company acquire a larger building with more space than needed but rent the remaining space?
- Where should the company headquarters be located for best operations, tax benefits, etc?
Now that you see the need for understanding real estate, we can begin to talk about different introductory aspects of real estate assuming you are a first timer or beginner seeking knowledge on real estate. Let the fun begin!
What is Real Estate?
What is real estate? Real estate is simply the land and things attached such as buildings or improvements to the land.
Real estate involves a fixed location as it’s not going anywhere. You own the land in one specific location of the world and that area as a whole is called your “local market”.
Real estate involves uniqueness as some land is near oceans, near mountains, or in the middle of nowhere.
Real estate has different land uses. Some people own land zoned for residential living, while others own commercial property for offices, or industrial property for buildings and warehouses.
Real estate involves long term commitments and is an illiquid asset that cannot be quickly bought or sold within the second like a stock can.
Since you’ll be owning real estate or land for a long time you have to consider the long term commitments.
These include repairs and maintenance, property taxes, insurance, and the future use of the property as laws and times change and cities grow and develop.
Real estate involves large transactions as you have to generally have large sums of capital to acquire it whether it is your own money or the financing of a third party.
When you sell real estate, you receive a large sum of capital.
This is typically one of the largest expenses the average person undertakes in their life when seeking a home to purchase so the lessons learned today will not only help you in real estate investing but in life.
Finally, real estate involves long gestation periods as development plans take a long time to materialize.
When demand for housing exceeds supply due to an increase in population, developers begin building new real estate to increase the supply available and ease the demand.
You can look at the history of your city and see how it has developed over time. It’s quite fascinating.
What is Real Estate’s Importance to the Economy?
You recall the 2008 financing crisis I’m sure. What caused it?
A real estate bubble as many homeowners were receiving mortgage loans they should have never qualified for when banks were analyzing the borrower’s financial situations.
This led to rising home prices as banks kept the demand pool of buyers strong by having loose lending requirements.
There soon became a high default crisis of home owners who could not pay their high interest loans they took out with mortgage lending institutions.
We can place a lot of the blame on the greedy banks but it is also the people’s responsibility to make smart financial choices and one of those choices is not to get over leveraged with debt when buying real estate.
On the positive side of things, 90% of millionaires credit real estate as a major contributor to their net worth. It will be a major factor to your net worth also and help you join that elusive millionaire status club.
Real estate is a vital aspect of our economy in terms of job creation and can create substantial wealth as well for investors. Here are 11 real estate careers you can consider as well.
There are also many sub markets that benefit greatly when people buy and sell real estate such as the construction industry and all the companies who create things people buy for their homes such as furniture, appliances, and random items.
Overall, real estate contributes greatly to the average Americans balance sheet and net worth.
If you look at the balance sheet of the average American you’ll see real estate compromises 20% to 40% of their assets owned. Real estate also typically contributes to about 5% of the U.S. GDP.
Why Be a Real Estate Investor?
You might be asking why someone would want to be a real estate investor so I’m going to rapid fire through a lengthy list of reasons real quickly for you and hopefully you can relate to several.
#1: 90% of millionaires have become a millionaire as a result of owning real estate. It adds substantially to your net worth.
#2: Entrepreneurs have a greater opportunity to become wealthy through real estate than other businesses they may wish to start.
#3: Real estate doesn’t require a degree from college and doesn’t care what GPA you got, nor care where you went to school.
#4: Real estate doesn’t discriminate based on age, race, background, etc. but laws make it so that you have to be at least 18 years of age to purchase real estate as this is the age you are legally perceived as having the ability to read and understand contracts.
#5: Credit scores don’t matter in real estate as there are many other ways to purchase real estate besides bank financing. If you use bank financing then you will need a credit score.
#6: You can participate in real estate without using any of your own money
#7: You don’t have to be involved in real estate full time to be successful
#8: You can invest in real estate even if you have a full time job
#9: You can live in another state or country and still invest in real estate in a specific city other than the one in which you live in
#10: Real estate can provide you with steady monthly income
#11: Overtime, your tenants monthly rent payments will pay down your mortgage as well as other expenses such as maintenance, taxes, insurance, and still leave you money left over to live off of or to reinvest.
#12: The IRS says that the majority of tax payer wealth is held through real estate
#13: Real estate is more tax advantaged than other investments
#14: One tax advantage of real estate is depreciation because the IRS knows that overtime the structure built on the land, such as a house or apartment building, will break down thus they let you deduct depreciation expenses from your income to lower your taxes.
#15: The government gives you tax incentives to own real estate in order to motivate Americans to own real estate.
#16: Barriers to entry such as education/knowledge of real estate investing keep many people away from ever participating because they don’t understand it and don’t feel qualified enough to try it.
#17: Real estate uses the power of leverage which can allow you to own more real estate than money you put into the deal unlike stocks where you buy only how much you can afford and you have to have a lot of money before you start earning decent income from dividends.
#18: You can make money in both up and down markets. By purchasing property at the right price you can protect yourself from bad times and do very well in the good times.
#19: Real estate pays you based on results, not based on hourly wage or salary. Therefore, you control how much you want to earn and aren’t capped by your boss or employer
#20: Real estate can provide you financial freedom and allow you to live off of the passive income, no longer needing your job. Many join real estate investing to someday make enough money to quit their jobs.
There are many more reasons why you should invest in real estate but we will cap it at 20 for now.
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Additional Articles to Read:
Here are some additional articles related to today’s real estate investing topic.
- Rental Properties for Beginners
- How to Analyze a Fix & Flip
- How to Wholesale Real Estate
- What is the Gross Rent Multiplier Metric?
Once you’re done with those, I highly advise snagging some of the free resources provided below as well as check out our flagship course teaching beginners how to launch a successful real estate investing business.
- Sign up for our FREE 10 day email course on real estate investing
- Grab our cheat sheet of 10 marketing strategies to get more property leads
- Check out our YouTube channel for more helpful tips and lessons on real estate investing.
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