Hi, this is Sunny with Synergy Real Estate and Property Management in Bakersfield, CA. Today we’re going to go over real estate investments and why it’s a good investment choice versus other investment ideas.
The first reason we came up with was leverage. When purchasing property in the United States leverage is pretty common where you can get banks to fund at least 80% of the purchase price. This allows you to put less money down and there is less risk. Obviously your cash flow will be affected but because there’s less risk and the interest rates are so low there is cash flow that should be produced from the property. That can then help you move forward in paying it off. Over time, essentially, you’re having someone else come in and help you in paying that property off.
Basically, you want to be easily able to leverage what assets you do have against what assets you can get to purchase the biggest property you can. That is income producing, that is an asset. Leverage is really good for that which you cannot necessarily fiend in other types of assets.
Being a Necessity
The second thing is the idea that people will always need a place to live. Specifically talking about residential income property, meaning houses and apartments. People will always need a place to live. For example in the current COVID crisis we’re seeing a lot of people having to work from home. Not only now do they need a place to live, they need a place to work so that space is becoming even more important. A lot of office space, retail, or commercial property is going to see a little bit of a problem when this transition happens because people are efficiently working from home and some might even prefer it.
This change could, theoretically, bring more stability to your investment as a residential income investor when providing a quality space for people to live and work in.
The third reasoning is the housing market is fairly stable. If we look at the stock market, especially over the past year, it’s fluctuating and constantly making changes. If you look at it over the long term it may stabilize out that curve so it doesn’t look as chaotic if you’re investing in stocks. However, if you compare it to the housing market graph you will see that the housing market tends to be a little bit more stable. Depending on how you view it, this allows there to be a little less of a risk tolerance or allows you to feel comfortable to take more risks because it is more stable.
Being in a more stable environment is good for investors and brings about confidence and can do some great things for the market. The stability of the market is one of the top reasons real estate investments is the best investment strategy in our opinion.
Profit and Cash Flow
The fourth reasoning is there is profit in different ways. For example, you buy stock which is purchased in company to see that stock price grow. Meaning we may buy the stock at $100 but we wanna see that grow to $200 and for the most part, that is how a lot of people will purchase stock. There are dividend investors as well and they’re not necessarily looking for the growth that you get in a stock price but they are looking for the residual income that you can get from that stock.
Again, it can fluctuate quite a bit because the stock market fluctuates on a second to second basis. The overall market will affect how the dividend stocks are doing and will affect the dividend return and the actual stock price. In this way, it can be fairly unstable but these are two ways people make money in the stock market.
The same can be said for real estate. In real estate we’re looking at cash flow, the money that comes in as you own the property. How much can I rent this property for? What are my expenses? I should have money left when that is said and done.
Cash flow is a pretty regular thing to get in a real estate investment versus the minority that you see in dividend investors. We also look at appreciation. We look at the same thing in the housing market. I bought it at this price and I want it to go up to that price. It’s the same concept with stocks but you’re looking at a little bit more stable environment because the transactions aren’t on a second to second basis, they vary over periods of time. Naturally the fast paced chaos is going to stabilize as you move the transactions apart.
Finally, real estate investments have the loan paydown. If you rent your property out to a tenant you’re not paying the mortgage on a regular basis. The tenant is paying the mortgage on a regular basis, they’re paying the loan down for you. That’s something that you can make some money on as well. Then you have the tax benefits of owning real estate. Depending on your income level this is really important.
So, there are just a few of the factors of real estate investing. As always, if you have any questions please feel free to comment below. We want to create content that you find valuable so if you have any specific topics that you would like to see and talk about we’d be more than happy to do so. Please comment below. If you haven’t already, subscribe to our Youtube channel using the links below.
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Thank you and have a great day,
Sanjeev (Sunny) Advani
Office Lic 02012941