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Why Real Estate is a Great Investment Vehicle

Wealth Accumulation – Cashflow – Inflation Resistance – Diversification

Wealth Accumulation

When you purchase an investment property and successfully lease it out essentially, you’re having someone else pay your mortgage. With interest rates down around 3% now, you don’t need that much money to get a decent investment property, and for only around 20% to get started, it’s one of the easiest and safest ways to accumulate wealth. Over the years, as the home appreciates in value and tenants pay off the loan, the equity increases on your property and further builds your wealth which can lead to leveraging that equity into yet another income-producing property.

Cash Flow

Unique vs other investments you might make, if done correctly, investing in rental real estate enables you to generate positive cash flow when your tenants pay their rent. If you took out a mortgage to buy your investment property, your positive cash flow comes from the money left over after you’ve paid for the monthly home expenses (mortgage, repairs/maintenance), and once you’ve paid off that mortgage, it can be significant.

Once you have enough of a real estate portfolio that generates adequate cash flow, you may be able to sufficiently live on that income, perhaps without the need of supplementing with a 9 to 5 job. One of the main pros to real estate as an investment strategy is if you’re smart in how you do it, you may be able to provide yourself with the gift of autonomy from a 9-5 life.

Inflation Resistance

Residential rentals are a tangible asset that can provide resistance against inflation. Typically, rents increase 2-3% per year, and residential real estate increase in value through appreciation. Without being subject to spikes in economic trends like other asset classifications, real estate yields an asset that grows in value over time and provides monthly cash flow.

Diversification

With the volatility of the stock market in this pandemic age, it’s no big surprise why people turned towards real estate. Residential income properties are classified as a non-traditional asset that isn’t directly tied to the stock market.

Not only will you be able to add an extra layer of diversity to your portfolio, but you’ll still be also able to earn steady cash flow even during a bear market. In fact, during some of the toughest market conditions within the past few years, SFR investors were able to implement annual rent increases as the stock market dropped.

The main takeaway here is real estate isn’t as volatile as the stock market. You’re unlikely to experience a sudden spike in the worth of your investment, but you’re also more likely to experience a steady incline.

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