Business owners juggle multiple tasks on a daily basis. In between running their enterprise, managing employees and maintaining healthy cash flow they have to stay ambitious and on the lookout for new investment opportunities.
Many entrepreneurs believe that real estate is still the best investment you can make.
Why is that?
Real estate can generate ongoing passive income and when property prices skyrocket and it becomes a seller’s market, you can stand to make a handsome profit. You can even leverage real estate to build your wealth.
It’s normal to have mixed feelings and common among single individuals and young couples who are just starting out in their careers. The fear of getting tied down and going into debt is a lot to handle. However, the fact remains the more you know about real estate investment, the less scary the entire process will appear to you.
Here are 6 reasons why other small business owners love to own real estate and why you might too:
Pride of ownership
Perhaps the number one reason why individuals invest in real estate is the pride of ownership. It means you do not have to worry about neglectful landlords, rent increases or the building being sold and redeveloped.
Renting may cost you in the long run due to opportunity costs equal to what you would gain by using the capital to purchase property instead. You may have a personal or business interest in real estate.You may come from a family of realtors who are knowledgeable about the value of owning property or you may simply want to be a part of a neighbourhood that you have always had your eye on. Whatever the case, it can give you a sense of stability and security knowing that you are making an investment in your future.
Appreciation in value
Real estate can be unpredictable. Sometimes it goes up and sometimes it goes down. In recent years, we have seen constant appreciation in real estate i.e. an increase in the value of property over time. In fact, it has been evident for quite some time that, as opposed to other asset classes, the real estate asset class builds wealth on a more consistent basis.
This occurs for a number of reasons including changes in inflation or interest rates but an increase in demand is the main contributing factor. As bare land becomes occupied, it becomes more desirable. In turn, when the quantity of land or housing is low but there is a high demand for housing, the value of the property skyrockets.
With this in mind, it is always a good idea to put capital in a safe investment where it is likely to pay off down the line. Property is exactly this kind of investment.
Something you may not know about real estate is that property taxes paid for a first home or a vacation home are fully deductible from your taxable income. Although this depends on several factors, including the size of your mortgage and your personal tax bracket, you stand to benefit from indulging your entrepreneurial spirit.
As a general rule of thumb, the newer the mortgage means the greater the amount of monthly interest you will need to pay and the bigger the tax break.
Diversification of assets
Whether you are a new real estate investor or a seasoned professional, you need to consider all of the potential risks and rewards associated with an investment. This includes diversification of your assets and the overall risk of your portfolio.
When it comes to real estate, both the appeal and risk involved in investing are very location-dependent. By focusing your efforts on a number of postcodes, you have the opportunity to diversify your real estate portfolio and choose the right locations to ensure that your portfolio will be successful.
By diversifying your assets (industrial, retail, mixed-use, etc.), you can maximize your chances of preserving capital and generating returns. This way, you are not at the whim of one single market’s unpredictability. The phrase ‘don’t put all your eggs in one basket’ is apt.
Rent is a great, stable way to generate income for yourself. When you find tenants who are willing to pay your monthly rate, the rent you collect will almost certainly be greater than the taxes, mortgage and insurance that you will also need to pay for. Moreover, many associated expenses are tax-deductible.
In the short run, you might make a small profit or break even but in the long run, you are actually paying off your initial investment.
Two of the most attractive advantages of real estate are that you can always modify, customise or improve your property. Whether you are planning to sell and want to enhance the value of your property or simply looking to improve its curb appeal, renovations do not have to be costly and time consuming. Adding a fresh coat of paint, updating the flooring, or doing the kitchen up are simple ways to add value to your property.
With ownership comes the luxury to paint, fix, decorate, occupy or sell your property as you see fit. You can redecorate and renovate any way you like, any time you like. The best part is that by doing so, you can increase the overall resale value of your property.
At the end of the day, you can invest in a property as an existing business owner or you can manage the property as a business in its own right. Either way, the secret to success lies in educating yourself first and foremost.
“The opinions expressed by BizWitty Contributors are their own, not those of BizCover and should not be relied upon in place of appropriate professional advice. Please read our full disclaimer."