A plethora of investment options are available to people looking for places to invest their savings. One such option is beginning real estate investing. It is a highly rewarding investment option and if you do decide to make money in real estate investing you will enjoy excellent returns on your investment, much more than most other investment options.
One of the biggest advantages of investing in real estate is financial leverage. If you get loans for real estate investing from banks, you typically can get it with 10% down payment as your contribution, which means your returns would be magnified 10 times. If you, let's say, have $25,000 to invest and all asset class give a return of 10% per year, then investing these $25,000 in stock would result in $27,500 at the end of the year, with a gain of just $2,500. While on the other hand investing the same $25,000 in real estate worth $250,000 (with $225,000 as bank loan) would result in $275,000 with a total gain of $25,000.
Compared to stock investing, real estate investing gives ten times more returns. Mind boggling, isn't it? Before you start to wonder, "How on earth is that possible?", let's answer it for you. When you take a loan for buying a property, it works towards maximizing your returns by the concept of "leverage". Though there are several other reasons for real estate investing, leverage does make investing in real estate lucrative to potential investors.
The tax benefit that one can avail is another good reason for getting started in real estate investing . The REQUIRED depreciation by the IRS on the property provides one of the best tax breaks by showing a "paper loss" on the property when in most cases the value of the property is appreciating. The juicier part of the story is that one pays taxes on a reported profit figure that is significantly lower than the actual earnings.
The 1031 exchange defined in section 1031 of the Internal Revenue Code of United States figures on top of the list of tax benefits available to US citizens. Under this, the people selling their property don't need to pay capital gains tax if they choose to reinvest the proceeds of that deal into another real estate investment.
Flexibility is one final benefit of beginning real estate investing. Sale contracts can offer flexibility. Creativity can be used when writing your offers, unlike the stock market. Contracts can include exchanges beyond the traditional cash for property. This can create a greater return and a win-win situation for the buyer and seller.