12 Feb The advantages of cash flowing investment real estate

Why do we feel real estate in the long run is the best investment choice for most people?

Real estate has the unique ability unlike stocks or bonds to derive returns from many different sources.

Control

In addition to pride of ownership, a well purchased investment property allows a means of control over an investment that is not possible in other types of areas such as stocks. Real estate being local allows the investor to see what is going on and is not dependent on listed companies that are out of their day to day control.

Leverage

The ability to use other people’s money to leverage your initial investment (down payment) is a key benefit to real estate. Banks have always favoured real estate as security over other types of investments. Try going into your local bank and ask them to lend you money to buy the bank’s very own stock with only a small down payment. They won’t.
Leveraging allows you to control a much larger asset with probably a 10-25% down payment. The positive return over the cost of financing will greatly accelerate your investment and magnify your returns.

Cash Flow

Collecting rent month after month, year after year produces cash flow that allows the real estate owner flexibility in determining what to do with the extra monies. The ability to reinvest those funds in additional properties, pay down debt, use for personal use etc is a very important feature to an owner.

Asset Appreciation

Real estate traditionally has always had the highest correlation as a hedge against inflation. The replacement cost of real estate has a high ratio of labor and replacement costs.

Forced Appreciation

In addition to normal market appreciation an owner can use forced appreciation to accelerate the property’s value. Forced appreciation comes in different forms but could include:

Zoning changes

Addiing additional square footage or rental units
Refurbishing and repricing rental units to attract a different rental client

Debt paydown

One of the best features of investment properties is having the tenant pay down your existing debt. A properly purchased and cash flowing rental property should produce sufficient income to cover all the property expenses, return on investment to the owner and of course to pay down the debt.

Tax Favoured

One of the few remaining investments that allow. Mortgage interest and depreciation deductions can shield a large portion of your rental income stream.