Before going into the reasons why investment in real estate will be beneficial for you, it will be relevant to see the yields on other investment options. Buying bonds is a choice for investors who would like to play it safe, especially if these are Government bonds. Average yields are in the range of 5 to 6 percentage with dividend paying yields being in the range of 2 percent or less. Since these instruments are bought mainly as a channel for safe parking of funds the yields offered is not a significant factor for investors. If you want higher yields the investments too would turn proportionately riskier.
Real estate on the other hand have always given attractive returns (apart from a brief period a decade and a half back when real estate prices fell dramatically and the world was faced with a major economic downturn). This has been mainly because yields from it are from multiple income channels – one making up the slack if there is a fall in another.
Here then are some of the reasons why you should invest in real estate business.
- Appreciation – There is generally an appreciation of value of rental property due to inflation. This will have a twofold effect on your original investment. First, you can sell your rental property at a higher price than what you bought it for. You can avoid tax on this capital gain if you plough your funds back into buying property again. However, this time you will have funds to invest in a higher value property than what you had. The value of your real estate portfolio therefore goes up. Secondly, the higher value property that you have now purchased can be used for an increased line of equity for additional investments.
- Rental yield – This is the yield from direct rental income and is calculated as a percentage of the total value of property. The yield can be calculated as net income which is minus all taxes and expenses. If mortgage payments too are taken into account, the returns can be quite low, often at par with yields on bonds. However, this too can be taken as a positive aspect of investing in real estate as it is just one of the many income channels only.
- Inflation proof investment – This is one investment that will never let you down even in high inflationary conditions. It is because rents always rise with inflation but not your quantum of mortgage payments. Hence there will be an increased cash flow but no corresponding expenses for retaining the property. This is somewhat similar to gaining knowledge and expertise in a particular field that keeps on giving returns without further investments. Consider the case of enrolment in a registered nurse course. You invest in admission and annual fees, complete the course and then start earning salary from a job, regardless of prevailing inflationary trends or recession. Similar is the case in investing in real estate which is insulated from inflation. Incidentally, one of the leading institutes for nursing courses in Australia is ACFE.
- Technology for easy management – Apart from profits and equity and other financial gains from real estate, there is another aspect of any investment and that is managing the asset created. In the past, managing real estate was not easy – it entailed driving around to meet people, coordinating with real estate agents and brokers and dealing with hundreds of pages contract for every deal. Today, technological advancements have made the task that much simpler and easier. You can put up your property for rent on Craigslist, take the help of specialised services to screen potential tenants online and contact maintenance services online. You can have tenants paying you rent online through Bank transfer instead of going on a collection spree every month. All this will be from the comfort of your home.
All this goes to show that by investing in real estate, not only do you gain financially but you also have it easy managing your investment.