Benefits of Real Estate Investing

Real estate has been a strong investment option for many years, due to several benefits that come with ownership. Some of these advantages include consistent cash flow, asset appreciation, inflation hedges, tax advantages, and leverage. Let’s break these benefits down a bit further.

Consistent Cash Flow

Cash flow is one of the most sought-after aspects of real estate, in my opinion. The idea of passive income, or “mailbox money”, is one that just sounds so easy. Sitting on a beach, collecting checks while hundreds of miles from your assets, without a care in the world. While this is possible, and “mailbox money” type investments are out there, I have found that these opportunities are not as common for everyday investors. This is where Nord Ventures can help put your money to work in our projects. We do all the heavy lifting and partner with people who are often too busy with their own careers, lives and families to want to manage these projects. The three main avenues to invest with us include Syndications, Joint Ventures, and Private Loans.

Asset Appreciation

The benefit of asset appreciation reflects the increased demand for the underlying asset, ultimately driving up the value of your investment. Although this is not guaranteed, there is a long history of asset appreciation in markets that are growing steadily. This is sometimes called speculation, as no one really knows how demand may shift one way or another based on uncontrollable market conditions. There are some data points worth considering though, when looking at the growth of a market over the long term and assuming some level of consistency in the future. The main drivers of this market demand include job growth, population growth, and outside investment growth.

Inflation Defense

You have probably heard the term “a hedge against inflation”, but what does this really mean? In simple terms, prices increase in times of inflation while the value of currency is decreasing. Another way to put this is that there is more currency chasing fewer goods. The reason real estate is usually a good hedge against inflation is because as prices go up, so does the price of your asset along with the average rent the market will bear. For this reason, real estate is a good store of value, there is always a demand for housing and there is a finite amount of it in the world.

Tax Benefits

Owning real estate has historically been incentivized by favorable tax advantages. These tax benefits vary based on the tax position of the individual investor. It is always advisable to talk with your tax professional to better understand if and how you can capitalize on these opportunities. The main tax advantages include depreciation, operating expense deductions, and deferred capital gains (1031 exchange and step up in basis). These are a few of the possible tax benefits that come along with investing in real estate. If you want a comprehensive guide to more tax tips, I recommend the book “Tax Free Wealth” by Tom Wheelwright.

Leverage

 Leverage is less likely to come up in the discussion of real estate advantages, but it is one of the most essential steps in growing a portfolio. In the context of real estate investing, leverage is the ability to use banks and other people’s money to go further, faster. Leverage comes in many forms, a few include bank loans, private loans, and private equity. With leverage, you can use your money to put a down payment on a property and let the bank or an investor fund the rest. You can also partner with someone who provides all the money, while you do all the work. This is a win-win situation because you as the operator get to preserve more of your capital, while the bank or investor enjoys a passive investment that is backed by the real estate. Another strategic option with leverage is a cash out refinance. This is when you have enough equity in the property to pay off the current debt you have on it while still owning the property. If you have enough equity in the property, you can even get money back when you close this new loan.

These benefits can help in building and keeping generational wealth in an effective manner. If you would like to discuss more about any of the above, give us a call, schedule a time to talk or fill out a form here and we would be happy to help.