There are 4 key benefits of adding real estate to your investment portfolio. Often times people become so fixated on contributions to their 401k that they fail to realize there are other options. Sure, they hear the ads about investing in gold and silver, and maybe even receive in the mail two "free" tickets to an upcoming real estate buying workshop in the nearest big city, but too many people believe that real estate investing is for the rich elite - the people behind the LLC, INC, LP, et al.
But I can assure you that real estate investing is available to most anyone who is willing to put forth a little effort. And when I say real estate investing, I'm not talking about a REIT. I'm talking about a tangible, reach-out-and-touch-it, actual structure.
This is the equivalent of the returns you get when investing in the stock market. When the tenant pays the rent, and the landlord pays all the expenses, the money left over is the cash flow. Cash flow coming in is good. Cash flow going out is bad. It is important to do a careful financial analysis of a property BEFORE settlement (and preferably before even looking at the property)!! There is no calculus or trigonometry involved analyzing cash flow, but I would strongly recommend speaking with a real estate agent or property manager for the first few deals. A positive cash flow gives steady, reliable passive income, compared to the earned income from a job.
Real estate investing comes with a nice benefit called depreciation. It's basically the government saying, "We stink at managing rental houses. Here's an incentive for you to do it instead of us." While you are able to write-off the cost of that new water heater, taxes, and mortgage interest, those all cost you money. Not so with depreciation. And, depending on how active you choose to be in the management of your investment real estate, you might be able to carry over a decent chunk of your "paper losses" to offset some of your earned income.
The fancy way of saying paying down the mortgage. Who's paying the mortgage down? The tenants! If you buy an investment property right and it produces monthly positive cash flow, your tenants will be reducing the principle of your mortgage every month. This is such an important concept! If you buy a new car and drive for Uber to help make the payments, you yourself are still working to pay that loan down. But with rental real estate, someone else is making the payments for you.
This one is last for a reason. It should not be the primary reason for buying a property. The old adage is that you make your money when you buy. Buying an investment and requiring appreciation isn't investing - it's speculating. I think of appreciation as the icing on the cake. As long as you have a buy-and-hold mentality, appreciation will rarely let you down.
While real estate investing may not be right for everyone, it definitely deserves consideration. The annual returns in the stock market typically average 7-12%. By combining the 4 benefits of owning investment real estate, returns will commonly run 20-40% or even higher annually. It's no wonder that more and more people are adding investment real estate to their portfolios today.