Billionaire Andrew Carnegie famously said that 90% of millionaires got their wealth by investing in real estate.
Are you investing in real estate?
Let’s explore the top 5 reasons why you might want to start investing in residential real estate:
Top 5 reasons to invests in real estate
1. Everyone Needs Housing
Real estate is one of the few asset classes that is a fundamental need for society. Everyone needs place to live. The US housing market is desperately lacking sufficient housing supply to satisfy all demand. Even if prices go up or down in the short term, people always need a place to live and population growth will likely continue to go up over time. This bodes well for housing prices to continuously go up over time.
2. Strong History of Stable Appreciation
Take any 10 year view of US residential real estate prices, and you’ll see that they’ve appreciated at least 32%. You can’t say the same of many other asset classes. If you’re looking to park your money somewhere and have it grow steadily over time, real estate provides you that avenue.
If you want to take a more active stance, you can also force appreciation by renovating or improving the property. Whether you buy an undervalued property and fix it up to sell, or you renovate a rental property, you can increase the home’s value faster than natural appreciation occurs, giving you an even greater return on your investment.
3. Consistent Cash Flow
Investing in buy-and-hold properties allows you to rent it out and earn monthly cash flow via rents minus mortgage + expenses. Most stock market investments, especially tech stocks, don’t provide any cash flow. Depending on how you manage your property, real estate can be a passive investment. If you work with a good property manager, or invest in the homes that will eventually be available on Homebase’s platform, you don’t need to do much work and still get to enjoy passive income and any capital gains when you decide to sell.
4. You Can Leverage Your Equity
Real estate is one of the few asset classes that allows you to get leverage on your investment 4:1. For example, if you’re purchasing a $100,000 home, assuming you put 20% down which is standard, you’re able to take out an $80,000 loan from the bank by putting your home down as collateral. What’s often the case is investors purchase properties where rents > mortgage payment + monthly expenses. Meaning, the cash you collect each month in rent is greater than your mortgage payment + monthly expenses.
As long as you’re able to keep the place rented for 90%+ of the year, the cash on cash return of most properties ends up being 5–10%+ each year depending on the market. This is thanks to leverage.
5. Favorable Tax Deductions
When you buy and hold real estate, renting it out, you own a business rather than just an investment. The IRS allows you to take many deductions just like you would if you owned a brick-and-mortar store.
Any expenses you incur to maintain the property, handle business, or even conduct business (buying a laptop, traveling to the property, etc.) can be written off on your taxes. This reduces your tax liability and increases your profits.
Depreciation is another big way investors lower their tax liability. Depreciation is the process used to deduct the costs of buying and improving a rental property. By convention, most U.S. residential rental properties are depreciated at a rate of 3.636% each year for 27.5 years. It’s is one of the real estate hacks that saves investors millions in tax write-offs each year.
Takeaways
As you can see, investing in real estate has a lot of financial upside and tools available for investors to lower tax liability. Unfortunately getting into real estate investing can be quite expensive. The median price of a home in the US is now $440,300. That means you need at least $88,060 to put the down payment to invest in a rental property. That amount of money is out of reach for many Americans.
At Homebase, we’re building a platform that allows you to invest in tokenized real estate for as little as $100. It’s clear that investing in real estate is a tried and true pathway to building generational wealth and passive income. We believe everyone should have the opportunity to invest, not just millionaires like Andrew Carnegie.
Sign up for early access: https://homebasedao.io/
Thanks for reading!
Domingo, Homebase Co-founder
