Real estate has long been viewed as one of the best long-term investments, providing steady cash flow, appreciation, tax benefits, and leverage. With high inflation and stock market volatility in 2022, many investors are looking to real estate as a way to diversify their portfolios. Nova Real Invest provides an in-depth look at why real estate remains an attractive investment in the current climate.
Leverage allows investors to magnify returns
One of the key advantages of real estate investing is the ability to utilize leverage through mortgage financing. Investors can buy a property for 20-30% down while rents and appreciation boost returns on the total investment. Professional investors often use low-cost debt to increase cash flow. With interest rates still near historic lows, leverage remains appealing.
Inflation hedge through rising rents
Inflation erodes the purchasing power of cash savings. However, real estate rents and values tend to rise with inflation, providing a built-in hedge. As the costs of materials, labor and development rise, replacement costs for properties increase, pushing up values. Landlords can also raise rents as overall prices increase.
Tangible asset not correlated to stocks
Real estate provides a tangible asset that historically has low correlation to stocks and bonds. When stock markets decline sharply, real estate may hold its value or even rise in demand as investors seek safe havens. This diversification provides stability especially during periods of high market volatility.
Tax benefits lower cost basis
Investors can utilize tax benefits such as depreciation and 1031 Exchanges to lower the effective cost basis on investment properties. Depreciation enables owners to deduct a portion of property value from taxable income each year. 1031 Exchanges allow profits to be rolled over into a new investment tax-free upon sale.
With leverage, inflation resistance, diversification and tax benefits, real estate remains one of the most attractive assets for long-term investors. Nova Real Invest provides the latest analysis on utilizing property to build lasting wealth.