Why you should invest in Real Estate

Why you should invest in Real Estate

Photo by Andrew Loke on Unsplash

Are you looking for an investment tool to help you achieve your financial goals? If you’ve started researching, you’ve probably learned that there are a dizzying amount of investment opportunities, and each one has its own general set of features, risk factors, and ways in which it can be used. Some investment types include:

  • Bank Products – savings accounts that offer compounded interest, flexibility, and liquidity
  • Stocks – buying in to own pieces of a publicly traded company
  • Bonds – loans made by an investor to an organization in exchange for interest payments over a specified term, plus repayment of principal at the bond’s maturity date
  • Annuities – a contract between the investor and an insurance company, in which the company promises to make periodic payments
  • Retirement Accounts – tax-advantaged options such as IRAs or 401ks, designed for disbursement later in life
  • Investment Funds (mutual, closed-end, exchange-traded) – pools of money contributed from multiple investors and invested according to a specific strategy

Excluded from this list? Real estate investments. After the 2008 recession, buying into real estate got a pretty bad rap. However, there’s an extensive list of reasons as to why you should see real estate investments in a positive light. Any financial advisor you speak to will have different opinions on which form of investment or asset is best. To avoid contradictory advice and steer clear of biases, let’s take a look at the data and statistics to see how the cold hard facts point to why you should invest in real estate.

How many people invest in real estate in the United States?

If you’re wondering just how many people in the US choose to put their money into real estate investments, we’ve got the answer. According to a survey conducted by ORC International, the number clocks in right around 8 million. To break it down even further, the number of people who own:

  • More than one property: 10,200,000
  • More than three properties: 1,042,157
  • More than four properties: 547,947

How much money are they making?

If you’re wondering just how many people in the US choose to put their money into real estate investments, we’ve got the answer. According to a survey conducted by ORC International, the number clocks in right around 8 million. To break it down even further, the number of people who own:

The numbers are pretty impressive. So why are so many people on board? Well, quite frankly, the profits are pretty jaw-dropping. The graph below shows the amount of money held by real estate investment trusts (REITs) – a company, organization, or person who owns income-producing real estate. As of 2015, financial assets had amassed to 656 billion

Note the upward spike following the 2008 housing crisis. After over 4 million foreclosures, residential real estate investing emerged amidst the rising inventories and falling prices. Individual investors and partnerships bought up the foreclosures, playing a critical role in stabilizing prices in a ravaged market and restoring buyer confidence. Affordable rental homes provided options for those who had lost their homes in the crash – and investors saw a big return.

How do investors finance purchases?

In 2011, one in three homes purchased were for investment purposes. But how did investors finance these transactions? The myth that investors primarily use cash for their real estate expenditures isn’t true. Other vehicles for financing include:

  • Hard money lenders
  • Traditional lenders
  • Conventional mortgage loans
  • Borrowing from IRAs or 401ks

The data provided by the ORC continues to debunk the common cash myth. Statistically,

  • 4% use a self-directed retirement account
  • 12% acquire properties as exchanges under Section 1031 of the Internet Revenue Code
  • 51% put down a percentage of the purchase price and finance the balance

Where do they make the most money?

When you decide to invest in real estate, be sure to pick your investment city carefully. Read the chart below, provided by Statisa, to see the top ten cities that will save you the most money:

Here we see that investing in real estate is true for even first time home owners, not just those who own multiple properties. Where you live can affect how you finance. For example, competitive California markets could benefit from hard money loans in San Jose, whereas investors in tax-heavy states should consider long-term loans with lower interest rates.

In the end, the numbers don’t lie. By foregoing a real estate investment, you can be missing out on hefty profits and a diversified portfolio. Join the ranks and see how you can benefit by purchasing your next property.