Homeownership has always been part of the American Dream. Because of that, many people accept owning a home as the right, even obligatory, thing to do without considering the benefits and the risks. If you are contemplating buying a home, you should know and review the pros and cons of the investment you are about to make, as you would any investment decision before signing on the dotted line.
Benefits of investing in real estate
The benefits of investing in homeownership are numerous. With well-chosen assets, investors can enjoy predictable cash flow, excellent returns, tax advantages, and diversification, and it’s also possible to leverage real estate to build wealth.
Cash flow
Real estate can also provide consistent, reliable income, especially rental properties (both residential and commercial). If you’re still working a 9-to-5 job, that can mean additional cash to use toward vacations and nice-to-haves. And if you really build out your portfolio, it could equal an entirely new career.
Real estate investors make money through rental income, any profits generated by property-dependent business activity, and appreciation. Real estate values tend to increase over time, and with a good investment, you can turn a profit when it’s time to sell. Rents also tend to rise over time, which can lead to higher cash flow.
Diversifies your portfolio
If you’re already invested in stocks, bonds, gold, and other securities, real estate offers a good way to diversify that investment portfolio and mitigate risk. By spreading your funds across a number of different vehicles, you can more effectively offset losses, should they occur. The addition of real estate to a portfolio of diversified assets can lower the volatility of your portfolio and provide a higher return per unit of risk.
Recent discoveries from new studies
Stocks have nothing on real estate. At least in terms of building wealth. Younger households with middling incomes who bought a home within the last 10 years have been able to enjoy massive wealth gains, with housing wealth across nearly 1,000 U.S. cities increasing by over $8 trillion since 2010, according to a new study.
New studies and reports on 2021 real estate data suggest that last year the growth in a typical home’s value was much higher than the median income of 80% of the population in the United States. This is the first time homes have earned much more money for households than median workers in most major metro areas across the country, including high priced areas, such as San Diego and California.
In California, and nationally, growth topped out at $229,000 in San Jose. whereas, surprisingly, the growth in Los Angeles was at almost $132,000, approaching triple the median wage, $50,000. In Riverside and San Bernardino counties, the growth, at just over $111,000, far outpaced the median wage of $45,000. Researchers saw the same trend in the Southwest in greater Phoenix; the growth in home values, at $103,470, doubled the median wage, $52,000.