Anele Zifiso Dube
By definition real estate investment refers to the purchase of property as an investment to generate income rather than using it as a primary residence or personal use.
Some examples of real estate are a house, office buildings, agricultural land, commercial plots etc. Real estate is divided into several wide-ranging categories but the most common ones are residential real estate, commercial real estate and industrial real estate.
Residential Real Estate is property, whether land or building used for housing and typically involves homes, townhouses, condominiums etc.
Commercial Real Estate is property that has potential to generate profit through rental income or capital gains and ordinarily involves retail stores, office buildings, storage facilities etc.
Industrial Real Estate is property that is used for purposes of developing and manufacturing goods and normally involves manufacturing plants, storage and distribution facilities, flex spaces.
Similar to any investment it requires a lot of foresightedness and capital investment and if governed well is capable of fruitful returns.
Before investing in real estate investors need to be well informed on the benefits and risks involved to make an informed decision, the following are the benefits involved in real estate investment.
Benefits of Real Estate Investment
- Rental Income
Whether it’s residential or commercial real estate renters pay ownership a predetermined amount monthly until the lease expires.
It’s the most prevalent benefit why investors buy real estate because it gives investors a peace of mind as income is steady.
This revenue stream offers a stable income and the costs of repairing and maintaining are generally low. Rental income is common among retirees or investors looking for an alternative stream of income.
Lastly, it can act as a hedge to finance other investments hence diversifying your investment portfolio.
- Capital Appreciation
Investment real estate can realise capital gains for investors due to property increasing in value over a period of time. Capital gains being profit generated from the difference between the purchasing price and selling price.
Unlike rental income, investors earn capital gains on sale. The gain is due to the demand and supply of property and in recent years’ prices are increasing making it a very lucrative investment.
- Tax Benefits
Another major benefit of real estate investment is the tax benefits you are eligible to receive. Investors can write off costs associated with depreciation, mortgage interest repairs and maintenance, property tax and operating expenses.
This is an excellent way for investors to save and expand on their wealth. The benefit is earned annually when you file your taxes hence during the year investors have to keep a detailed record of the costs.
- Low Volatility
Real estate investments are not exposed to the same volatility as other types of investments. For instance, if you invest in stocks the market prices change every day but in real estate they don’t.
For this reason, real estate is a great opportunity for investors who want a stable investment with low risks and is predictable.
It is very important to note that real estate is not immune to risk rather they are just low hence a risk-averse investment.
- Real Estate Leverage
Leverage is the use of various financial instruments or borrowing instrument i.e. debt to further increase your investment potential return.
This is the most appealing aspects of real estate, investors can put down from 5 percent and control property worth significantly more than that.
In a nutshell investor can borrow against their assets to continue investing creating a snowball effect and if done well and effectively it enhances your investment portfolio.
Lastly, because real estate is a tangible asset one that can serve as collateral, financing is readily and easily available.
Anele Zifiso Dube is a Chartered Professional Accountant student at CPA BC in Canada/+1 (778) 512-4588 or [email protected]