My whole life I’ve avoided real estate.
I’m a passive index investing supporter. I have most definitely been against the blind purchasing of homes to “gain in value” and have been a staunch defender of the optionality and flexibility that renting provides.
Purchasing a home is a life decision. Not an investment decision.
But now with my savings beginning to pile up and considering other investment options aside from passive stock market investing - I’m considering real estate.
Performance In Uncertainty - Real Estate does will during inflation, deflation, and other market conditions. Now with coronavirus, diversifying away from all stocks is attractive.
Cash Flow Returns - With some great properties, cash flow on an unleveraged property can return 5-12% a year. Stocks or REITs could yield this as well, but…
OPM - Other People’s Money - With a 20% down payment you boost the return on equity. Even sticking with CPI growth of 2%, a property after 1 year with 80% leverage equals 10% ROE.
Refinancing - You can increase your rents. But one can always refinance to decrease operating costs to boost returns. This flexibility is attractive considering the interest rate environment.
Equity Building - I’m less concerned with flipping and short-term gains. A RE property with very little cash flow still builds equity each year, boosting saving rates and net worth.
Appreciation - I view appreciation as a bonus. But it shouldn’t be ignored (neither should depreciation). Yet appreciation even at the inflation rate boosts returns over the cash flows from rents.
Tax Sheltering - Tax deductions, tax credits, tax deferrals. These are all available through investing in real-estate and are far superior than other asset classes. $250,00 tax free capital gains for primary residence. And you can deduct your mortgage interest from your income—this alone could amount to considerable savings and, when all included, overall returns.