THREE MAIN PURPOSES OF INVESTING IN REAL ESTATE

It is not uncommon to notice that the vast majority of people would rather invest their retirement savings in some combination of stocks and bonds, typically through some kind of mutual funds. Despite the fact that this renders them a great opportunity to diversify their sources of earnings or the so-called investment portfolios, they are often shocked to discover the value of their investment has tumbled whenever there is an unprecedented change in the market conditions. Investing in real estate is no different, yet, the value of property acquired normally increases every single year, particularly against the ever growing populations where the land becomes scarce.

 

1. TO PRESERVE CAPITAL

Obviously, the ultimate reason for investing in real estate is the preservation and the possible enhancement of the money invested. A real estate owner may build up additional money through reduction of mortgage debt. Generally, real estate owners have enjoyed rising property values over the years. Consequently, the equity or the value of money invested is preserved and increased by appreciation. This is precisely the reason behind why real estate investments are described as the investment which hedges against inflation. Although the problems associated with tenants are legendary, prevalent and endless, however, they often improve the properties that they occupy to enhance their living environment. As a result, the betterment of the property they make tend to increase the property’s value and is often left behind by the time when they move.

2. TO EARN PROFITABILITY

Fundamentally speaking, all investors in real estate have one ultimate purpose to put their money in for the sake of gaining profitability. By definition, an investment of any kind is a commitment of funds with the intention of preserving a "capital/equity/money" and earning a profit. From the viewpoint of real estate investors, these profits assume two forms. First, the income stream derived from the tenants’ rents should generate one kind of profit. Second, the gross amount of rent should be adequate to pay for all of the fixed and variable operating expenses of the property with sufficient remaining to show a return on the investment. After all, before committing to make any investment of real estate property, an investor should analyze thoroughly the returns of investment from opportunities rather than simply acquiring the assets.

 

3. TO ENJOY TAX RELIEF

Unlike any other form of investments, the income stemmed from the rental real estate can be sheltered enormously to diminish the income tax liability and thus enhancing the bottom-line return. Often, after all income from a rental property is accumulated for the year, the expenses incurred to grow this income will possibly be deducted. As these expenses include all operating costs such as management fees, utility expenses, repairs, maintenance, advertising, bookkeeping and so forth, the interest paid on existing real estate loans is usually deductible as a consequence of the amount of depreciation. Hence, the gross income derived from rentals is effectively reduced to a net amount that is then subjected to the imposition of income taxes at the taxpayer’s pocket.