How to Make Money in Real Estate

January 1, 2022

Real estate investors make money through rental income, appreciation, and profits generated by business activities that depend on the property. Real Estate is an outstanding asset class that’s simple to understand and can enhance the risk-and-return profile of an investor’s portfolio.

On its own, real estate offers cash flow, tax breaks, equity building, competitive risk-adjusted returns, and a hedge against inflation. Other benefits of investing in real estate include passive income, stable cash flow from REITrusts, tax advantages, diversification, and leverage.

Cash flow from REITs

Real estate investment trusts (REITs) offer a way to invest in real estate without having to own, operate or finance a property.

Tax Breaks and Deductions

Real estate investors can take advantage of numerous tax breaks and deductions that can save money at tax time. In general, you can deduct the reasonable costs of owning, operating, and managing a property.

Real Estate Leverage

Leverage is the use of various financial instruments or borrowed capital (e.g., debt) to increase an investment’s potential return. A 40% down payment on a mortgage, for example, gets you 100% of the house you want to buy—that’s leverage. Because real estate is a tangible asset and one that can serve as collateral, financing is readily available.

Inflation Hedge

The inflation hedging capability of real estate stems from the positive relationship between GDP growth and the demand for real estate. As economies expand, the demand for real estate drives rents higher which in turn, translates into higher capital values.

Real estate tends to maintain the buying power of capital by passing some of the inflationary pressure on to tenants and by incorporating some of the inflationary pressure in the form of capital appreciation.

Enhanced Portfolio

Real estate can also enhance a portfolio by lowering volatility through diversification, whether you invest in physical properties or Real Estate Investment Trust.

Build Equity and Wealth

As you pay down for a property, you build equity—an asset that’s part of your net worth. And as you build equity, you have the leverage to buy more properties and increase cash flow and wealth even more.

Portfolio Diversification

Another benefit of investing in real estate is its diversification potential. Real estate has a low—and in some cases negative

—correlation with other major asset classes.

This means the addition of real estate to a portfolio of diversified assets can lower portfolio volatility and provide a higher return per unit of risk.

Real estate will always serve as a safe tangible asset to mitigate the risk in your portfolio. Many have amassed wealth by solely investing in real estate. Have you ever spoken to a financial planner about investing in property?

Then you should be very aware of the importance of diversification. When you diversify your portfolio, you spread out the risk.

An investment in real estate can also diversify your portfolio as luxury homeowners should ensure to get insurance which will also protect your investment in real estate. Get the best property policy available so your asset is protected even in the worst-case scenario or accident.

Asset Protection

Real estate provides better returns than the stock market without as much volatility.

Historically in real estate, your risk of loss is minimised by the length of time you hold on to your property. When the market improves, so does the value of your home, and as a result, you build equity.

The risk never changes in the stock market and there are numerous factors beyond your control that can negatively impact your investment.

Cash Control

Real estate gives you more control of your investment because your property is a tangible asset that you can leverage to capitalise on numerous revenue streams, while enjoying capital appreciation.

Other investments can leave you with little to no tangible asset value such as a stock which can dip to zero, or a new car which decreases in value over time. Get excited because there will always be value in your land, and value in your home.

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