| Because real estate is a hard asset that keeps pace with inflation, it’s one of the most powerful hedges available to protect the growth of your investment.
Smart investors are contrarians — they sell when property values are increasing and buy when they are decreasing. According to Realtor.com, major cities such as Austin, Charleston, Denver, Phoenix and Las Vegas have plunged between 7.9 percent and 10.3 percent since June.
As prices fall across the country, 2023 to 2025 may be the best time in two decades to invest in real estate that creates cash flow now, as well as generating revenue to fund your retirement.
Key benefits of owning real estate, as opposed to stocks, include: - Real estate is a hard asset that you can live in or rent.
- Virtually all U.S. real estate has historically kept pace with and/or exceeded the rate of inflation.
- You build equity as prices increase, paying down your mortgage each month, and/or making improvements to the property.
- Stock trades are conducted by sophisticated algorithms at the nano-second level that can result in massive gains or losses in just a few minutes. In comparison, real estate moves at a snail’s pace roughly cycling through seller’s and buyer’s markets about every 10 years. These long-term cycles make it much easier to capitalize on market shifts.
- Stock market and financial services fees consistently eat away at your profit margins. According to Investopedia, the typical financial planner charges 1.02 percent annually on the total amount of assets under management. For example, if you have $500,000 in your 401K that generates a 6 percent return ($30,000) you would be charged $5,100 in management fees. That’s a whopping 17 percent of your profits and that doesn’t even take into consideration taxes or inflation.
The downsides of residential real estate investments
Tenants can be a nightmare and a vacant or damaged property can quickly eat up cash reserves. Furthermore, like any other investment, real estate investments can decrease in value. Also, it’s difficult to predict what the tax consequences will be in terms of capital gains, dividends and Alternative Minimum Tax requirements.
Despite these issues, the 1031 exchange provisions are an important plus. Because owners can exchange up (i.e., buy a more expensive property), they can continue to grow their wealth more quickly because they are able to defer their taxes until they cash out.
Most importantly, because real estate is a hard asset that keeps pace with inflation, it’s one of the most powerful hedges available to protect the growth of your investment.
Call us at (480) 205 2234 to get more information on current mortgage rates whether you are considering a primary or investment property. |
