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Investing in Real Estate is a Smart Strategy for Building Wealth

From my own experience investing in cash-flowing rental properties for nearly two decades now, I’ve found that real estate is a smart strategy for building wealth. I feel it’s the best way to become financially independent, and it’s the reason I was able to leave my day job. Why is this the case? Because rental real estate keeps performing strong during economic downturns, provides massive savings through tax advantages, keeps monthly cash flow rolling in via passive income, offers leverage to keep investing, and it’s been historically labeled as a great hedge against inflation.

With all that said, let’s explore in detail why investing in rental real estate stands out as a powerful method for wealth accumulation.

Why Investing in Real Estate is a Wise Financial Move

Having invested in a variety of single-family and multi-family properties across different locations, I’ve gained firsthand knowledge of the financial benefits that rental properties can offer. However, I recognize that not everyone has had the same opportunity to take a deep dive into the world of real estate investing. Because of this, I’d like to share some insider knowledge that can potentially pave the way for those interested in exploring this avenue for the purpose of generating wealth.

1. Diversifying Your Portfolio Through Real Estate Investments for Financial Growth

While stocks and bonds have long been considered the cornerstones of a traditional investment portfolio, real estate comes out on top as a lucrative alternative, particularly during economic downturns.

If you hold a 401(k) or other type of traditional retirement account, then you know exactly what I’m talking about when I mention “economic turndowns.” I say this because most individuals who have retirement accounts such as these most likely had their funds drained when the market crashed during the pandemic. As a result, individuals who were set to retire that same year may have had to continue working.

Is Investing in Rental Real Estate a Good Way to Make Money

In contrast, those who diversified by adding rental properties to their portfolio saw their assets stand strong during that time. For instance, I own many properties that I’ve had for several years, and they have survived all the mood swings of the economy and Wall Street. On top of this, they’ve steadily increased in value through all of it.

This stability stems from several factors with the first being that real estate represents a tangible asset with inherent value. Land and property values generally don’t take a dive like stocks do during a recession. Also, rental income from a property provides consistent cash flow, even when the stock market is experiencing a downturn. This steady income stream can help offset potential losses in other parts of your portfolio and provide a buffer against economic hardship.

Don’t Make the Mistake of Relying on Your 401(k) – Diversify with Real Estate

One way to look at all this is to picture only having your 401(k) to rely on when you retire. Now, imagine disease X hits the same year you are set to stop working and wipes out the economy, Wall Street, and half of your retirement account. This would force you to postpone your retirement due to a lack of funds. Yes, it’s that easy to lose your money with retirement accounts that are tied to the stock market.

Now, imagine the same scenario, but you had added six rental properties to your portfolio years ago. The market crash drains your 401(k), but you would still have around $10,000+ in monthly rental checks flowing in like clockwork each month, which means you can still retire.

2. Investors Can Maximize Tax Deductions Through Rental Real Estate

Rental real estate offers the potential to significantly reduce your tax burden through various deductions. Unlike many investments where earnings are taxed as ordinary income, rental properties allow investors to offset their rental income with a multitude of deductible expenses. If you have a good CPA, in many cases, you can legally end up paying zero in taxes because of all the deductions and other tax breaks that are offered to rental real estate owners.

These deductions can cover a wide range of costs, from mortgage interest and property taxes to repairs, maintenance, and even depreciation. The bottom line is that many of the expenses incurred in managing a rental property can be subtracted from taxable income. This strategic tax benefit can translate to substantial savings come tax time, effectively increasing the overall return on investment for real estate owners with the goal of generating wealth.

A New Construction Cost Segregation Analysis Can Save You Thousands in Taxes

Investors can take tax savings a step further with a cost segregation study. A study such as this involves dissecting and categorizing the non-structural elements of a property, allowing items like cabinets, sinks, and patios, to benefit from expedited tax depreciation schedules, specifically 5, 7, and 15 years, rather than being grouped with the entire building structure, which typically falls into a 27.5-year depreciation period for residential properties.

Morris Invest includes a cost segregation study with its new construction properties, saving our clients an enormous amount of money in the early life of the property.

Be sure to dive into my article on this topic – The Power of a New Construction Cost Segregation. Also, feel free to schedule a call with the team over at Morris Invest if you have questions regarding cost segregation studies or would like more details on our available new construction rental properties.

3. Rental Properties Become a Powerful Tool for Generating Passive Income

Owning rental properties can be a powerful tool for creating passive income. Why? Because tenants provide a predictable and reliable source of revenue through their monthly rent payments. Also, the potential for long-term gains adds another financial benefit to the mix because real estate values appreciate over time. On top of this, rising property values typically allow you to gradually raise rents, which can bulk up your passive income stream.

So, how is the rental income earned considered passive income? Well, while initial efforts are necessary, the day-to-day management and operational tasks can be delegated to a property manager. This allows property owners to earn income with minimal ongoing effort. Property managers can take care of all aspects of the property, and this includes the tenants who reside in them. You can get more details on what property managers can do for you and how they can keep more money in your pocket by heading over to my latest article on the topic – Financial Advantages of Using a Property Management Company.

It’s worth mentioning that all my rentals are managed by a professional property manager. They handle everything for me. For instance, they take care of those 2 am phone calls from tenants who have a broken heater, and they keep my properties in great shape, which keeps the value climbing. Most of all, their hard work allows me to not get tied up in the day-to-day activities of managing multiple rental properties. At Morris Invest, knowing how essential property managers are to the success of a real estate investment, we assign a professional manager for you at a discounted price.

How Much Passive Income Will I Need to Become Financially Free?

If you want to create enough passive income through real estate to cover all your expenses so you can become financially independent, I suggest checking out my video that goes into detail on the topic, and discusses a tool I created, the Freedom Cheat Sheet that can help you pinpoint how many properties you need to reach your goals.

4. Leveraging Real Estate Enables You to Invest in Additional Properties

Real estate can act as a significant financial resource, especially during times when traditional financing options may be out of reach. Through refinancing or leveraging equity in real estate, investors can tap into needed funds for the downpayment of an additional rental property. Also, by leveraging the equity in your property, you can typically qualify for favorable loan rates compared to other forms of borrowing.

Leveraging in this way allowed me to substantially grow my portfolio when I otherwise wouldn’t have been able to, and it’s one of the main reasons I feel that investing in real estate is a smart strategy. If you’d like to learn more about equity, you can head over to our recent post –  Harnessing the Power of Home Equity to Buy a Rental Property.

5. Investing in Rental Properties is a Wise Decision Because it’s a Proven Hedge Against Inflation

Inflation is essentially when the cost of everyday items and services starts to climb, and simultaneously, the purchasing power of money diminishes. This means you’ll find yourself spending more to get the same products or services that used to cost less. Furthermore, as inflation touches various aspects of daily life – from commuting and medical services to groceries and housing, its ripple effects can challenge the overall economy, leading to adverse outcomes. That said, an economy hit with inflation is a challenge for just about every industry. However, real estate is an exception.

Owning many rental properties during these times of high inflation has actually put me in a better position financially. To explain, when inflation rises, so do rents and property values, which increases my cash flow and net worth. So, unlike stocks and bonds that deflate during economic hardships, real estate holds its value. All this places a buffer between the impact of inflation and an investor’s ROI, making rental real estate a good choice if you want to protect your wealth.

Essential Resources for Kickstarting Your Investment Journey

Don’t overlook these invaluable resources designed to equip you with the essential knowledge necessary to become a successful real estate investor:

Investing in Real Estate is a Smart Strategy That Can Generate Great Wealth

At Morris Invest, we specialize in guiding investors toward new construction real estate opportunities that promise not only reliable income but also the potential for significant wealth accumulation. Additionally, we can help transition your 401(k) to a self-directed IRA, enabling you to invest in real estate without compromising your retirement savings. For more information on this, refer to our detailed article – Why Switching from a Traditional to an SDIRA is a Smart Strategy.

The bottom line is that real estate is a wise investment vehicle that stands out for its profitability even during market downturns. If you’re considering investing in rental properties, feel free to book a call with a Morris Invest team member – we look forward to setting you on the path to financial freedom.

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