Besides property prices usually appreciate over the long term. Buying a home means you are also enhancing your wealth over time. Delaying your property purchase will result in having to invest a higher amount (in addition to having paid rent over an extended period of time).
Below are Key Factors to invest in property
1. Leverage
Leverage is one of the biggest benefits of investing in real estate. Leverage means borrowing capital to fund your real estate investments. It helps you increase your buying capacity. For instance, let’s say you buy a house costing 1 crore. You can pay as little as 10-15 lakhs down payment from your savings and take a housing loan to cover the rest of the cost. In this way, though you put only 10-15% of your money, you are the full owner of the property. Over the years, the property value will keep increasing and you’ll get a great ROI without putting your entire life savings into it.Â
2. Secure Investment Option.
Real estate is a safe investment option due to its –
- Low borrowing rates and rapid cost appreciation – Generally, in terms of capital growth and security, commercial real estate is a good long-term investment.
- Mixed-use developments – These multi-unit structures pose less concern during vacancy periods. There are multiple tenants, so you are not reliant on just one for your monthly income. Another element that lowers vacancy is that the lease for a company renting space is typically longer than in the residential market.
3. Diversify Your Portfolio.
Real estate investors have many types of real estate investments to consider, allowing opportunities for those looking for investments with potentially high returns or conservative options to find what they need.
- Residential properties: You can purchase single-family homes, condos or townhomes to use as rental property. This creates passive income and allows you to earn capital appreciation as the home’s value increases.
- Commercial properties: Investing in commercial property allows for more diversification and the potential for rental income. Like residential properties, you are the landlord, handling property management and collecting passive income from business owners.
- House flipping: Buying undervalued properties, fixing them up, and selling them for a profit is another option for a real estate investment. You don’t have to hold onto the real estate or worry about property management; you may also earn capital gains faster.
- Real estate investment trusts (REITs): Real estate investors who want to passively own real estate can invest in REITs or real estate investment companies that own and manage real estate.
4. Appreciation of Value.
The most important factor to take into account when weighing the benefits and drawbacks of a real estate investment is property appreciation.
The value of a property rises when market rates rise, enabling the owner to sell the home quickly. With the right upkeep and management, you may create a consistent rental income even if a property’s value stays flat for a while. All investors should thus do their homework before committing to a purchase in a certain area.
5. Protection Against Inflation
Real estate investments and income property can act as a hedge against inflation. When inflation occurs, the price of goods and services increases. With this, rental rates and property values also typically increase
This means that as the cost of living rises, so does the income you earn from your own home loan and property investments, helping you maintain your purchasing power.
6. Return on Investment
Profits from property-dependent businesses, rental income, and appreciation are the main sources of revenue for real estate investors. Real estate tends to appreciate in value over time, so if you make a smart investment, you can profit when it comes time to sell. Over time, rents also tend to increase, which might increase cash flow.
Rents increase when economies expand because there is more demand for real estate, which raises capital values. By shifting some of the inflationary pressure to renters and integrating some of it through capital growth, real estate has a propensity to maintain the buying power of capital.
One of the most attractive sources of passive income is rental revenue. One of the easiest methods to maintain a steady income after retirement is to do this. If you are still working, you may maximise your rental income by investing it following your financial objectives.
7. High Cash Flow.
Cash flow is the net income from a real estate investment after mortgage payments and operating expenses are covered. Real estate provides a considerable ability to generate cash flow. A steady monthly rental income is an excellent incentive of passive income and offers long term financial security to the investor. In many cases, cash flow only strengthens over time as you pay down your mortgage and build up your equity. A good real estate investment generally provides you with 6% or greater cash flow.
8. Tax Benefits
Tax deductions on Real Estate can offset income and reduce overall taxes. There is no self-employment tax on rental income. At the same time, the government offers tax breaks for property depreciation, insurance, maintenance and repair expenses, legal fees and even interest paid on a mortgage. Real estate investors get lower tax rates for their long term investments. Reasonable costs of owning, operating and managing property are easily deductible.
9. Secure Retirement
As mentioned, property is a strong choice for those seeking an investment with robust capital growth – something particularly useful when looking to build a retirement fund.
Despite the occasional slump, the UK property market is historically stable. With property and rental values soaring over the last few years, many investors have capitalised on the opportunity to build solid portfolios generating significant returns.
Alongside rental returns, potential capital appreciation of property over long periods of time can typically lead to significant profit when investors eventually decide to sell. This means that investors could have a combination of consistent monthly income as well as long-term gains.
10. Build Equity and Wealth
As you pay down a property mortgage, you build equity—an asset that’s part of your net worth. And as you build equity, you have the leverage to buy more properties and increase cash flow and wealth even more.
