Is Real Estate Still A Profitable Investment Today?
When it comes to profitable investing, most people consider real estate. In fact, the 2020 results of the annual Economy and Finance survey conducted by Gallup shows that 35% of Americans believe that real estate is the best type of long-term investment. This has been the case since 2013.
Similar results surfaced from Bankrate’s poll. 31% of the respondents stated that real estate is their favorite long-term investment. The study also indicated that among all age groups, millennials have shown the biggest interest in real estate investment.
For some, there might be some hesitations in starting in the real estate trade because of the high rate investment and capital required. But experts say that the rewarding benefits of these early sacrifices outweigh all the combined costs. Indeed, there is a promising future awaiting real estate investors who find their niche. Learn why this industry still thrives to this day!
Shelter will always be a basic human need
Maslow's Hierarchy of Basic Needs shows that the first need of every human is to survive. Thus, basic physiological demands involve biological requirements that help a person function properly. This includes air, food, drink, and shelter.
Having shelter is a basic need because it protects us against the changing temperature and weather conditions. Being homeless can expose one to the risk of contracting an infectious disease, chronic illnesses, attacks, and injuries. Likewise, the trauma of living on the streets may even contribute to the onset of mental health issues.
It’s clear that everyone needs a basic shelter to call home and be safe. Also, since most people are busy, they will prefer to have a readily built house than go through the process of building one from scratch. That reason alone makes real estate worthy of investment.
Buying a property is better than renting one
Some people resort to renting because it may appear to be a more economical choice than buying. Renting also takes away the responsibilities of repairing items, as this will be handled by the property owner. Moreover, renting has the benefit of flexible terms in case you decide to relocate.
While these factors appear to be enticing, we still can’t deny the fact that homeownership has huge rewards. Frequent moves from one rental unit to another can be exhausting. Owning a house of your own takes away this burden and provides long-term stability. Having your own property also gives you and your family privacy. Additionally, you can remodel the unit according to your preferences.
Purchasing your own house means you pay a fix-rate mortgage, as opposed to renting wherein rates can go up at every lease renewal. Building equity is also another benefit of homeownership. If you’re a homeowner, home equity is your most valuable asset. The equity value of the home can increase in time should you be able to increase your property’s value or pay down the mortgage loan balance.
Real estate has a bigger chance of appreciating in value
Compared to other assets like cars, boats, furniture, or equipment, real estate properties are some of the best investments you can make, because they are known to gain capital appreciation. Price appreciation pertains to the increase of the value of a home, building, or any kind of real estate property through the course of time. What most real estate investors do is to have their properties regularly repaired or renovated, so that their value increases. Likewise, price appreciation can also depend on other factors:
Demand and Supply
The prices of real estate properties tend to go up if there is an increased demand for homes in a specific location and there aren’t enough properties to meet that certain demand. For example, a family wants to live in a certain neighborhood, however, there are a few units left available for rent or purchase. Given that they really desire to have a house in that area, chances are they will be willing to pay more just to reserve a property. This is beneficial on the part of real estate brokers or home builders.
On the other hand, homeowners can also benefit from this situation. Let’s take a look at the previous example. The family was able to purchase the property but after a few years, they have decided to relocate. As owners, they can do anything they want with the property. Should they decide to keep and maintain it, then it can serve as a vacation house for them. But if they plan to put it in the market again, they can have a huge return on investment, most especially if the supply in that certain area decreases even further and the prices increase.
Inflation is defined as the surplus of money in circulation, which causes the value of money to go down. This affects the cost of the land, construction labor, materials, and even housing permits to increase. Note that inflation will not affect the value of the property if it exists in a location of poor accessibility, low standards of social and civic infrastructure, or if the area is already loaded with residential projects.
Cost of Borrowing
The constant increase or decrease in home loan interest rates is also known to have an impact on real estate appreciation. The demand for properties gradually declines when there is a surge in the cost of borrowing. At the same time, when there is a noticeable decrease in investment rates, the market responds positively. This results in a greater number of end-users willing to invest and higher demand for residential property purchases.
Property Market Drivers
Market drivers are simply defined as factors that influence individuals to buy a product or pay for a service. When it comes to real estate, possible market drivers are the developments in the said location that make living in that area more desirable and convenient. Here are a few examples:
- Development of shopping malls or hypermarkets
- The building of new office complexes
- Proximity to hospitals, schools, and other important establishments
- Accessibility to public transport facilities
Zoning regulations that preserve greenery or the natural ambiance of the location
Continuous infrastructure projects for the betterment of the neighborhood
Growth of Population
The latest population count in the USA is at 330 million. Needless to say, a lot of families or even single individuals would want to have a house of their own sooner or later. This continuous demand means faster appreciation in real estate costs.
The right investment offers unlimited opportunities
Traditional businesses can have the potential to generate a large profit, but it may take a few years before one can enjoy significant returns. Real estate is a preferred investment because it allows you to earn passive income in the long-term. With enough research and due diligence, you can earn even if you’re just a newbie. Here are some of the common profitable investing strategies you can apply to your property:
Long-Term Residential Rentals
We all know that shelter is one of our basic needs. People will always look for the ideal property they can occupy throughout their lives. You can use this fact to leverage your property for long-term residential rentals. How does it work? You simply buy the property, deposit down payment, and hold the property for the long-term. It’s a bonus if what you want to invest in is a pre-existing, income-producing property.
Another option that won’t require you to put down a large amount of capital or credit is leasing. Lease options give an investor the choice to purchase the rented property during or at the end of the contract. Compared to a standard lease-purchase agreement wherein the investor is required to do the purchase, lease options offer more flexibility. Leasing with an option to buy is like a discount—you’re sure to get the property in due time, yet you only pay today’s price and not the potential increased value it may have in the future.
You have several options to earn while on the lease option:
- Sell the property
- Sell a portion of the property also on a lease option
- Have a portion of a property rented out
One of the most effective ways to get a passive income from your property is to use it for vacation rentals. People love taking vacations, and they would prefer to spend their holiday in a place that is not too expensive like hotels. This can be an excellent side hustle or can potentially be your main source of income if marketed well.
If you’re planning to market your property for short-term rentals, the location must be your top priority. Do research as to where most travelers would like to visit and consider getting a property in that area. Make sure that your chosen property is near different attractions and amenities. These are guaranteed perks for your future guests! Check out Avery Carl rental listings for available properties that can be used for a vacation rental business.
Take note: Real estate investing revolves around proper cash flow
Cash flow is important in any kind of business, and this includes real estate investing. This is determined by deducting all the expenses from the income made. You have a positive cash flow if your income is higher than the total expenses. The amount of money remaining after conducting the said equation serves as your profit.
Maintaining positive cash flow is a guaranteed way to make money in the real estate business. It can provide consistent income, which can possibly turn a side hustle into a full-time job. Therefore, if you plan to invest in real estate, look for cash-flow positive properties based on conservative estimates to ensure you get high returns.
Real estate is indeed a profitable investment opportunity. Since shelter is a basic need, you'll never have to worry about your market. Properties are also likely to increase value over the years. So, if you plan to sell them in the future, you'll surely get a high return on your initial investment. You can also use the property for rentals or lease options to earn more money. For more information about real estate investing, visit our website today!