Why Invest in Real Estate
Real estate has become a popular investment vehicle over the last 50 years or so. With few exceptions, the average sale price of homes increases each year. Home prices did take a small hit at the onset of the COVID19 pandemic in 2020. However, as vaccines were rolled out and pandemic concerns waned, home prices have recovered to reach and or exceed pre-pandemic levels.
There are many reasons why one should invest in a home.:
a. Buying a Home to live in
When you think about real estate investing, the first thing that probably comes to mind is your home.
b. Buying a Home to Rent
If you invest in rental properties, you become a landlord. As the landlord, you will be responsible for things like paying the mortgage, property taxes, and insurance, maintaining the property, finding tenants, and dealing with any problems. One way landlords make money is by collecting rent. How much rent you can charge depends on where the rental house is located.
c. Investing in Homes for resale
The other primary way that landlords make money is through appreciation. If your property appreciates in value, you may be able to sell it at a profit (when the time
comes) or borrow against the equity to make your next investment.
d. Investing in Homes to reduce overall risk exposure
Real estate will guarantee maximum return to an investor operating in a volatile environment. In general, the real estate market is one of low risk, especially compared to stocks/shares and bonds.
e. Inflation Hedging
Home prices tend to rise along with inflation. This is because homebuilders' costs rise with inflation, which must be passed on to buyers of new homes. Existing homes, too, rise with inflation though. If you hold a fixed-rate mortgage, as inflation rises, your fixed monthly payments become effectively more affordable. Moreover, if you are a landlord, you can increase the rent to keep up with inflation.
f. The Power of Leverage
Investing in real estate gives an investor one tool that is not available to stock market investors and that is leverage. Leverage means to use debt to finance a larger purchase than you have the available cash for. Mortgage confers to the owner the right to use property even when one has not fully repaid the instalments. Most conventional mortgages require a 20% down payment. However, depending on where you live, you might find a mortgage that requires as little as 5%. This means that you can control the whole property and the equity it holds by only paying a fraction of the total value.