You face a variety of considerations associated with developing a comprehensive financial plan. In this regard, you need to understand how investment real estate can be a part of your overall financial plan. There are a number of major benefits associated with including investment real estate in your broader financial planning efforts. Reviewing these benefits assists in understanding the role that real estate can plan in your overall investment and financial planning endeavors.
In developing your overall investment strategy, one consideration that may be important to you is including at least one type of investment in the mix that generates more steady income. One of the reasons why investment real estate is a valuable addition to a comprehensive financial plan is the fact that it can provide a more steady source of income. With the typical type of investment real estate, you are able to enjoy the prospect for steady income through recurring rental payments.
The fact that real estate has the ability to provide a more steady income stream is a solid offset against other types of investments that do not present this benefit. For example, in addition to real estate, you might also invest in securities. While some securities may provide a dividend during the course of the year, the income stream from stocks pays out (usually) quarterly, while investment real estate can send a check every month.
Longer Term Financial Stability
Although the real estate market can present ups and downs and some level of uncertainty, overall an investment in real estate is a stable alternative, meaning, it’s tangible. You can touch real estate. The stock market generally is (usually) more volatile and abstract. Yes, there can be real estate market upsets like when the “real estate bubble burst” in 2008. Appreciating that these types of real estate upheavals can occur, the reality also is that the real estate market historically rights itself and an investment in real property regains and then increases in value after a downturn.
There remain tax benefits associated with investment real estate. For example, income generated from a rental property is not subject to self-employment tax. In addition, revenue generated via investment income presents tax breaks that can be taken for property depreciation. In addition, with investment real estate you have the ability to take advantage of other types of deductions that are available to businesses more broadly. These include deductions for such expenses as management and administrative fees.
There were some changes in the Internal Revenue Code that went into effect in December 2017 as part of the tax reform legislation enacted by the U.S. Congress and signed into law that year by the President. These changes had a more direct impact on tax deductions associated with home mortgage loans as opposed to negatively impact tax benefits noted here associated with investment real estate.
Real Estate Value Appreciation
Yet another of the reasons why real estate can be a positive component of a comprehensive financial plan is the reality that generally speaking real estate will prove to be an asset that fairly consistently appreciates in value over time. As noted, there can be instances when the value of real property will dip as the result of something like the real estate bubble burst and the Great Recession of 2008. However, with consistency in the United States, market value rebounded in regard to real estate after setbacks or downturns.
Generally speaking, the increase in real estate value is relatively consistently paced. In this regard, in the vast majority of situations, a person can make a real estate investment and count on it appreciating in value into the future.
Hedge Against Inflation
Real estate historically has been considered to be a good hedge against inflation. Unlike some other types of investments, inflation generally is a trend that benefits a real estate investment. For example, with inflation, the costs associated with rent on leased property increases. Thus, when inflation continues apace, the owner of investment real estate can keep pace with that economic change and charge more money for rental on a piece of property.
You’re the Decision Maker
Another reason why investment real estate is a good addition to a comprehensive investment plan is found in the fact that you are the decision maker. More than is the case with many other types of investments you really do have broad authority when it comes to the ins and outs of a real estate investment.
You may bring other people into the fold when it comes to managing investment real estate. Nonetheless, even if you engage services like those provided by a property manager or similar professional, you retain your position as the decision maker when it comes to investment real estate.
In the 21st century, including real estate in your overall portfolio is wise in order to diversify the overall investment scheme. Real estate generally is considered a less volatile investment and its inclusion in a comprehensive portfolio can be useful to offset some of the risk associated with more volatile alternatives that you may want to include in your financial planning efforts.