Not so long ago, flipping houses seemed to be all the rage, and more than a few people started in real estate as a way to make quick money. It is, of course, not impossible to make money in the short-term with real estate, but for most people this is an ill-advised strategy. So, what’s the safer bet here?
Lengthen your time horizon, and fit property investment into a cohesive financial strategy that meets your goals and needs.
I recently had seasoned real estate hand Kevin Turner on the Get Invested podcast, and he echoed these same sentiments. To paraphrase Kevin, property investment can be very forgiving – if you give it time, more-often-than-not it will come around. And because of this, the best approach to property investing is one with a long-term vision. Those who are trying to time the market are kidding themselves.
I agree wholeheartedly with Kevin’s perspective and, in light of that, here are five supporting reasons why taking a long-term approach is often the best way to go in property investment.
High Leverage
Financing allows for leverage in real estate in a way that few other investments can match. With a real estate secured loan, you are able to control a $1 million property portfolio with only a 10% deposit plus establishment costs.
Appreciation
Almost all buyers assume appreciation, and historically most markets have proven them right. But how long you hold a piece of property for has everything to do with how much appreciation you’re able to achieve. The difference between selling at 5 years and 15 can be enormous.
Passive Cash Flow
A lot of the money in real estate is made in buying rather than selling. So, if you’ve purchased well and set things up correctly, your property will cost you very little while it increases in value over the years. In this way, investors enjoy cash flow affordability while playing a very hands-off role in holding the investment long-term.
Protecting against Inflation
Owning investment real estate can be a great way to hedge against continual inflation. If prices rise, so will the cost of housing. Owning an asset that rises with the tide is a great way to hold on to a greater percentage of your wealth. And who doesn’t want that?
Retirement Income
Over a 20 to 30 year period, building a property growth nest egg that can be converted into a tax-effective income cash flow in your retirement years is a very attractive way to replace your income when you stop work. Many people fret over their financial security in retirement years as previous salaries dry up. Creating wealth through long-standing rental properties is a great way to ensure financial peace of mind for the remainder of your golden years.
So, there you have it. Investing in real estate, when done with the right intentions and analyses, can create the nest egg required to replace your income so that you can work less and live more. And taking a longer-term approach founded on patience and persistence tends to mitigate most of the issues that can crop up – it provides more benefits and allows people to avoid any get rich quick-type delusions.
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