Although you have no idea what will happen to you in the future, where your life will be heading after ten or twenty years. What will you face after your retirement? and why is real estate investing? Nobody knows nothing yet as a rational person you must plan your future, especially your post-retirement life. Let us say you need 50000$ per year when you retire. For this, you must have 1,250,000$ in your pocket at the time of your retirement. Now assume that you retire at the age of 60 and you have 1,250,000$ in your pocket and you are going to spend 50,000$ a year. With this pace, you will run out of fuel at the age of 85. Better hope you don’t live longer than that.
You can have multiple options for saving for post-retirement life. Like you can invest in stocks and shares or maybe real estate investing might help? But surely you want maximum output with a minimum of effort or investment. Let us make a comparison between investing in stocks and real estate investing.
-Real Estate vs Stocks Investment:
Before moving there, let us assume that both kinds of investments will be yielding a 4 percent return and the investment period is 30 years. Then if you are opting for real estate investing, an investment of 700,000$ will yield 2,800,000$ in real estate assets. While if you choose to invest in stocks then it takes about 900,000$ to earn 50,000$ per year’s annual income. So which will you be choosing?
This article will focus on why real estate investing is better than other types of investments. How to get rich in real estate? We will discuss different ways to earn in real estate like passive real estate investing, best real estate stocks, real estate investment strategies, etc. let us start with why real estate investing is better or why should you invest in real estate.
–Predictable cash flow: Real estate investing gives you predictability in cash flows. Cash flows are basically net spendable return from investing in real estate. A good real estate investment should be yielding 6 percent or more cash flow.
–Appreciation in value: One of the best advantages of real estate investing is appreciation in real estate properties. Your property will pile up increased market value every year. This is one of the best methods to counter inflation rates. National association of realtors stated that since 1968, appreciation ratio or percentage have been 6 percent per year.
–Equity Build up:
Real estate investing also provides you an opportunity to build equity with minimum capital. How? you can borrow money and invest in real estate. Rent out that property and pay installments from rental cash inflows. In the end, after settling the borrowed money, you will be the owner of the property and can use it as you like. Isn’t it great?
–It is improvable:
If you are investing in stocks, then you are depending on the stock market and the performance of the company you invested in. Real estate offers you a luxury of improvisation. Real estate is a physical property. You can make improvements, renovations to make it look better. This attracts tenants and you can charge more as rentals if your property is “beautiful” and pleasing for the tenants.
Real estate can make you feel comfortable which you think about your retirement. Let us suppose, you are 25 and you buy a house either with your investment or you take a loan. You can repay that loan by renting that house and earning through rents. After loan settlement, all the rent will be your profit and rents increase every year.
Now assume that you are going to retire at 60. Just imagine what will be the worth of that house which you bought 35 years ago? Yes, it will be worth investing in real estate.
Real estate investing has other benefits like a tax deduction. How? according to tax codes, you can claim renovation, maintenance or property upkeep expenses from your total income for taxation purposes. Moreover, if you are paying interest or mortgage then you can also deduct those expenses from your total income. This reduces your overall taxable income and thus reducing tax payable.
–Real estate is depreciate-able:
One of the most interesting benefits of real estate investing is that real estate properties are allowed for depreciation purposes. While, in reality, your property is getting appreciation in value. Depreciation is a non cash deductible expense for tax purposes. This reduces the overall tax burden.
–Lesser tax rate:
Tax rates for gains from selling a property are lower than tax rates for personal incomes or business incomes. Moreover, you can settle your losses in real estate with your gains in real estate. You can also deduct your gains from the real estate if you purchase a new property and you can also carry forward your losses to next year and settle them with gains from real estate next year.
Let us shift the momentum towards passive real estate investing. What is passive real estate investment? It is basically generating income from real estate with minimum or no effort at all. You just have to invest money in real estate and work as a silent or passive investor. However, Passive real estate investing doesn’t necessarily mean that you have to be passive though. The main theme behind this form of real estate investing is generating revenue with minimum or no effort. This kind of investment suits people who have other jobs or businesses. Passive real estate investment is one of the best options to earn extra money and making your post-retirement life more secure.
Let us see how can you earn as a passive real estate investor:
–Real estate investment trusts (REIT):
As a real estate investor, you can purchase shares of real estate investment trusts (REIT). REITs are companies that are responsible for investing and managing a commercial portfolio of real estate properties and earning a dividend return. If you are looking for passive real estate investment, investing in a REIT may be one of the best options for you. All you need to do buy shares of a REIT. You don’t need to stress out or put too much effort. Just invest in a REIT having a good reputation and more importantly, you don’t need to have “huge money” to invest in a REIT, you can buy shares even worth a few hundred dollars.
REIT stocks offer a better rate of return than ordinary stocks. REITs have to follow a mandatory obligation to distribute 90% of their taxable income. That’s why, dividend return is higher, ranging from 3% to 12%.
Here are some benefits of investing in REITs:
- REITs usually provide higher and competitive returns on your investments. They generally range from 3-12%
- REITs own a diverse portfolio of real estate. This provides diversity ad risk diversion. Thus your investment becomes secure.
- You don’t have to manage your real estate investment. You don’t need to stress out or put extra effort. Your investment is managed by professionals who have industrial experience and knowledge. It is safe to say that your investment in considerably in safe hands.
- You don’t need a big investment for REITs, you can start with a few hundred bucks and most importantly, these stocks are available to everyone.
Talking about real estate stocks, here are some best real estate stocks categorized accordingly:
Best value real estate stocks
Price ($) Market Cap ($B) 12-Month Trailing P/E
Vornado Realty Trust 66.06 12.6 4.2
Host Hotels & Resorts Inc. 17.52 12.3 11.3
Simon Property Group Inc. 144.45 44.3 20.8
Fastest Growing Real Estate Stocks
Price ($) Market Cap ($B) EPS Growth (%)
Welltower Inc. 82.25 33.4 752.9
Duke Realty Corp. 34.40 12.6 313.3
Crown Castle International Corp. 138.87 57.7 75.76
Real Estate Stocks with the Most Momentum
Price ($) Market Cap ($B) 12-Month Trailing Price Change (%)
Equinix Inc. 581.88 49.6 60.8
CBRE Group Inc. 60.62 20.3 46.7
Prologis Inc. 88.47 55.9 45.3
–Real estate crowdfunding:
Well, if you hold the status of an accredited investor, then you can take part in real estate crowdfunding investments. It is like a number of investors investing together to purchase a commercial real estate property. These properties are managed by third-party sponsors, who in return, get a preferred return, equity split or even both. This kind of investment offers a very high rate of return but there are some risks attached to it. So if you are a “brave-hearted” investor, this might be your thing.
Here are some advantages of real estate crowdfunding:
- It can give a much larger rate of return ranging from 10% to 30% depending upon your investment.
- The best thing about real estate crowdfunding is you can invest in “bigger projects” which might be difficult for a “solo investor”. You can invest in hospitals, large apartment buildings, etc)
- These investments are managed by third-party sponsors so you don’t need to have an active involvement.
One of the most common and oldest modes of passive real estate investing. You can rent out your property and earn monthly income. It has so many advantages attached to it. Positive cash inflows are guaranteed. You can manage your property with minimum effort and you can hire a third party to do so.
Here are some benefits of rental properties:
- Highly possible to gain income even by hiring a third party.
- Positive cash inflow is highly expected
- Appreciation in property’s value
- Available to everyone
–private money lending:
This involves investor funding or financing for a home buyer or another investor. These are mostly private loans and are given to trusted associates, friends or family members. Interest earned through this method is fairly higher than a traditional mortgage.
Here are some advantages:
- Passive source of income as long as the buyer is playing fair.
- It can give a higher return on your investment, ranging from 10% to 20%.
- Available to anyone.