Why Real Estate Investment

Why should you invest in real estate? Well, investing in real estate for profit is one of the most popular approaches to generating additional income in the United States today. In fact, if you pay attention to the recent press you will have seen numerous reports on the madness of real estate investment that seems to be sweeping the nation.

When done carefully and intelligently, real estate can generate fantastic benefits that can not be achieved through any other type of investment. These are just some examples of why real estate investments can be such a powerful wealth generator.

1. The real estate markets are slow to react: although real estate, like everything else, has ups and downs, in general, it is much slower to react than the stock market. For example, you will not get up in the morning and discover that your investment in real estate is worth ten or twenty percent less than it was yesterday.

2. Leverage. You can borrow money to buy real estate, while, generally, you can not borrow money to buy shares. You can control a large dollar value of real estate with a small amount of your own money through the use of loans and mortgages. The stock market, by law, limits the amount of leverage (margin) you can use to buy shares. There are no such limits with real estate.

3. You can buy real estate for less than its market value. In many cases, you can buy a property for only 60 to 70 percent of the market value. When buying stocks, you may be able to find an action that is considered "undervalued", but in general it is difficult to do so on a regular and constant basis.

4. Real estate offers a huge amount of tax benefits through depreciation. Real estate basically has two values, the land and the building (s) on the land. For example, if a property has a value of $ 250,000 and the appraised value of the land is $ 75,000, the building would be worth $ 175,000.

The government allows real estate investors to depreciate the value of the building in equal parts during its "useful life", which is defined as 27.5 years. So, for example, based on the construction value of $ 175,000 previously, the annual depreciation value would be $ 6,363.63 ($ 175,000 divided by 27.5). This means that, for tax purposes, the investor could reduce his annual income by $ 6,363.63!

Many people consider that the notion of depreciation is confusing since it is not really a waste of money. I recommend that you consult with a qualified tax professional for more details and how this can benefit you.

5. Real estate markets are isolated local markets. For example, when the stock market falls, almost everyone and everything related to it is reduced. When housing values decline in a city like New York, it generally does not affect the value of properties in other cities such as Boston or Chicago. To protect yourself, you can have a "geographically diversified" investment portfolio to protect against these types of events.

6. You The investor can control the value. Another aspect of real estate investment is that, unlike any other investment, this investment is controlled by the investor. For example, as an investor, you can increase the value of your investment property by making some modifications to the property, such as adding a garage or replacing the carpet, etc. With shares or any other investment, the investor can not do anything to increase the value of the investment.

7. The Efficient Market Hypothesis (HME). When a market has prices that always "fully reflect" the information available, it is called "efficient". The stock market, for example, is considered by the majority as an efficient market. When you call your broker to buy or sell an action, you can be sure of one thing: the price you bought or sold was really the "right" price for that action on that day and at that time. Why? Because the existing price for the shares will already incorporate and reflect all the relevant information available about the company, such as income, and other metrics.