There is a reason that property investment has endured the test of time, and this is because it works. There is something to be said about owning a physical piece of property, and a growing number of investors are recognizing the benefits. Below are some of the top reasons why property investment should be your number one priority.
Property Investment is Immune to Automation
Technology is advancing rapidly in a way where many jobs no longer require the physical labor of humans. The adoption of robotics and artificial intelligence is no longer science fiction; it is science fact. Property investment is one of the few industries that are almost completely immune, because as long as there are humans they will need a place to live, and most people don’t have the large sums necessary to buy their own homes in cash. This means rental properties will remain high demand for the foresee-able future irrespective of how advanced robots or automation becomes.
Property Investment Provides Steady Cash Flow
The reason most people never become rich is because they exchange dollars for hours. The richest people in the world don’t do this; they acquire assets that provide steady cash flow directly into their pockets. This means they make money automatically without having to clock in at a 9 to 5 job. Passive income is one of the top reasons people get into property investment.
Property Investment Provides Tax Advantages
Individuals who derive their income from property investment get to keep a greater share of their earnings than those that earn their income from other endeavors. The reason for this is because the government loves real estate investors, as they stimulate the economy by creating jobs and keeping the cash flowing. The self-employment tax is not applied to property investment income and you will also gain the benefit of depreciation.
The Tenants Can Pay Down Your Loan
In a simple illustration of how this works, let’s say you want to purchase a 5-unit apartment complex in the U.S. that costs $500,000, but you only have $250,000. You would approach the bank or mortgage company and do a deal where you’d put 50 percent down so you’d pay $250,000 up front. At 100 percent occupancy, each of the 5 tenants would pay you $1000 per month, which is $5,000 total.
$3,500 of this money would be used to pay down the remaining $250,000, while the other $1,500 would remain in your pocket. In less than 7 years (considering interest rates), the property would be paid off, all with the cash provided by the tenants, and then later $5,000 per month would go directly into your pockets. This is a simplified example but is essentially how the rental business works.
As you can see, this is great deal, and you also get depreciation, which is a fancy term that basically means that as you (technically your tenants) pay down the loan, the value of the property can increase. Remember, real estate is a commodity and as such can also be used as an inflationary hedge.