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What I Learnt When I Asked My Boss Why Business Owners Love Investing in Real Estate

Being the youngest employee in the office has its ups and downs – as most graduates out of straight out of university would find out. Getting tasked with mundane roles is understandably part of the learning curve and it’s what majority of us have to grind through, regardless of the industry. But being a young […]

Being the youngest employee in the office has its ups and downs – as most graduates out of straight out of university would find out. Getting tasked with mundane roles is understandably part of the learning curve and it’s what majority of us have to grind through, regardless of the industry. But being a young gun in the office also frees the up the social boundaries other employees feel like they’re bound by. From frothing over the boss’s new Aston Martin to poking him directly with questions on the mansion he lives in, we can get away with curious questions… all because we’re young. 

Business owners juggle multiple tasks on a daily basis. In between running their enterprise, managing employees, and maintaining healthy cash flow, being ambitious means always being on the lookout for new investment opportunities.

That being said, the majority will agree that real estate is still the best investment you can make today. Why is that?

If you are not in it for a quick return, it can generate ongoing passive income. And when prices skyrocket and it becomes a seller’s market, you can stand to make a handsome profit. You can even leverage real estate to build your wealth.

Of course, it is perfectly normal to have mixed feelings and this is quite common among single individuals and young couples who are just starting out in their careers. The fear of getting tied down and going into debt is a lot to handle. However, the fact remains that the more you know about real estate investment, the less scary the entire process will appear to you.

Here are 6 reasons why business owners love to own real estate: 

1.     Pride of ownership

Perhaps the number one reason why individuals invest in real estate is the pride of ownership. It means that you do not have to worry about neglectful landlords, an increase in rent or the possibility of the building being sold and redeveloped.

Renting may cost you in the long run because there is an opportunity cost equal to the amount you would gain by using the capital to purchase property instead. You may have a personal or business interest in real estate, you may come from a family of realtors who are knowledgeable about the value of owning property, or you may simply want to be a part of a neighbourhood that you have always had your eye on. Whatever the case, it can give you a sense of stability and security knowing that you are making an investment in your future.

2.     Appreciation in value

Real estate can be unpredictable. It moves in cycles – sometimes it goes up and sometimes it goes down. Yet, in recent years, we are seeing constant appreciation in real estate i.e. an increase in the value of property over time. In fact, it has been evident for quite some time that as opposed to other asset classes, the real estate asset class builds wealth on a more consistent basis.

This can occur for a number of reasons, including changes in inflation or interest rates, but an increase in demand is the main contributing factor. As bare land becomes occupied, it becomes more desirable. In turn, when the quantity of land or housing is low but there is a high demand, the value of the property skyrockets.

With this in mind, it is always a good idea to put capital in a safe investment where it is likely to pay off down the line.  

3.     Tax benefits

Something that you may not know about real estate is that property taxes paid for a first home or a vacation home are fully deductible from your taxable income. Although this depends on several factors, including the size of your mortgage and your personal tax bracket, you can stand to benefit from indulging your entrepreneurial spirit.

As a general rule of thumb, the newer the mortgage means the greater the amount of monthly interest you will need to pay every month and the bigger the tax break.

4.     Diversification of assets

Whether you are a new real estate investor or a seasoned professional, all of the potential risks and rewards associated with an investment need to be taken into consideration. This includes diversification of assets and the overall risk of the portfolio.

For instance, when it comes to real estate, both the appeal and risk involved in investing in property largely depends on its location. Therefore, by focusing your efforts on different areas, you have the opportunity to guide the diversification of your real estate portfolio and choose the right location(s) that you believe will be vital to your investment success. 

By diversifying your assets (industrial, retail, mixed-use, etc.), you can maximize your chances of preserving capital and generating returns. This way, you are not solely dependable on the unpredictability of a single market. The phrase “don’t put all your eggs in one basket” applies to this notion.

5.     Rental income

A more stable way to generate revenue from real estate is through ongoing rental income. As soon as you secure safe, clean, and healthy living conditions and find tenants who are willing to pay your monthly rate, you can collect more in rent than you are paying for taxes, mortgage, and insurance. Moreover, most associated expenses are tax-deductible, and any losses can cancel out gains in other investments.

In the short run, you might make a small profit or break even, but in the long run, you are actually paying off your initial investment.

6.     Home customization

Two of the most attractive advantages of real estate is that it is customizable and improvable. Whether you are planning on selling and you want to enhance the value of your property or you are simply looking to improve its curb appeal, renovations do not have to be time and money consuming. Adding a fresh coat of paint, updating the flooring, making quick fixes around the kitchen or entertainment area – these are just some of the ways in which you can draw the eye and add value that requires little cost and low overhead.

With ownership comes the luxury to paint, fix, decorate, stay or sell your property as you see fit. You can redecorate and renovate any way you like, any time you like. And the best part is that by doing so, you can increase the overall resell value of your property.

At the end of the day, anyone can start investing in real estate. You can invest in a property as an existing business owner or you can manage the property as a real business. Either way, the secret to success lies in educating yourself first and foremost.

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