Ten Advantages to Investing in Real Property

1. It’s relatively easy to borrow money from other people to buy real property, especially if you find a good deal. When borrowing money to buy real property, the property itself acts as collateral and hopefully also produces the cash flow needed to pay for it. Based on comparably priced properties and existing leases, the security lenders are looking for is relatively easy to determine. When compared with a business or stock in a publicly traded company, real property is a much more predictable investment and thus easier to borrow against.
   
   
2. It’s just a matter of time and effort to find a good deal. Go for walks. Drive around town, or hire a realtor to look for you. Sooner or later, if you spend the time looking for a property, you can find a profitable property that suits your budget and taste.
   
   
3. The property you buy is totally under your control, unless you want to delegate its management. You pick the tenants, the vendors who work on it, and the people you borrow money from to buy it, not to mention the décor and location. Compare this with stock in a corporation in which you only own a small percentage and over which you have virtually no control. There, if the management loses millions, you have little recourse. But with real property, you can change something if you find that it isn’t working. Change it until it works!
   
   
4. You can put as little or as much time and effort into managing real property as you like. If you simply want to invest in real estate as a hobby or as a long-term investment, you can delegate its management and maintenance to someone else. On the other hand, if you prefer to be a more hands-on manager (and turn your time into money), you can simply do it yourself, if you’re so inclined!
   
   
5. You get rental income, and if done correctly, you also get appreciation of capital. Of course there are many different approaches to investing in real property. You can buy, hold, and rent. You can buy, fix up, and resell. You can buy, fix up, and rent. Any way you do it, you can either get rental income, capital gains, or both. Of course, the risk is that you won’t find a suitable tenant to pay rent, or a buyer at a profitable price. Unfortunately, that usually means you didn’t buy the property correctly!
   
   
6. There are tax advantages to investing in real property. If you buy a house, live in it as your primary residence (in the U.S.) for two years and sell it at a profit, you may be able to keep the profit, tax free (up to $250,000 for a single person or $500,000 for a married couple filing jointly). Investment properties can be depreciated over time, and their maintenance expenses generally can be deducted from your taxes. When it’s time to sell, you can recognize investment property gains at a lower capital gains rate or you can trade it tax-free instead. If there’s a loss on the sale, the capital loss is usually limited to the extent of other capital gains, plus $3,000 (for joint filers in the U.S.).
   
   
7. You can live in it. If it’s large enough, you can fix up an apartment in part of the building for your own use. Alternately, you can rent your property to your corporation and have your corporation require you to live there for the convenience of your employer. The rent expense is tax deductible to the company. See IRC Sec. 119 (a) and the linked article. Click here.
   
   
8. It can be anywhere. You can buy real property almost anywhere, and if you do, you can be anywhere. Buy five different properties and live in five different places during the year. You can avoid the cold and/or the heat altogether.
   
   
9. It’s harder to have it stolen from you because there’s a recorded deed showing ownership. It’s not like gold coins, cash, diamonds, or other collectibles! Once it’s in your name, it’ll take more than just walking in and walking off with it. In most cases, if you pay the property taxes, you can keep your property for a long time.
   
   
10. It can have multiple uses. Real property (subject to zoning restrictions) can be used for a variety of things: residence, business, hotel, etc. While it may require jumping through some bureaucratic hoops, it is oft times possible to change the use of a property to a more profitable use.