The Benefits of Owning Real Estate

Owning real estate has many benefits compared to other assets such as stocks, bonds or cryptocurrency. Real estate is a reliable method of growing wealth that has stood the test of time for thousands of years.

The vast majority of our clients have a main source of income (or multiple sources) from a field of activity that they are truly passionate about, and they invest in real estate on the side (starting with their own home). I agree with them that this is a great long-term strategy.

Today I would like to explore why real estate is so reliable, as well as the different ways in which real estate ownership provides financial benefits. The benefits of real estate ownership include:

1. It provides a place to live

2. It preserves your wealth (practically inflation-proof long- term)

3. It provides the possibility of appreciation

4. It can provide tax deductions

5. It forces you to save (by requiring you to make mortgage payments)

6. It can provide an income stream if you decide to rent out your property (now or in the future)

Let’s take a look at each of these benefits in detail:

1. It provides a place to live

   Everyone needs a place to live. Whether you are buying or renting, you will need to pay SOMETHING each month for living expenses. When you rent, your monthly payment lasts one month, and that’s it. When you buy, even though you will have to pay extra because of mortgage interest, some part of that payment goes to you. If you decide to move and sell your property, you will likely get some money during the sale that you can use toward your next property.

2. It preserves your wealth (practically inflation-proof long-term)

   Creating wealth is one thing, but retaining it is another. Few families are able to retain wealth long-term, especially over many generations. But some have done so, for example in Europe, where some families have been able to retain their wealth over a period of more than 1,000 years—through wars, inflation and significant political upheaval. Economists have found three strategies these families employed:

   • Converting money into real estate

   • Converting money into valuable art

   • Converting money into precious metals, specifically gold and silver

   Interestingly, I have some experience with this in my own family. My grandfather was a Hungarian businessman who endured the regime of the Nazis during WWII. When, after the war, the Communists invaded, he escaped to South America. He owned an apartment in an upscale area of Budapest which the Communists expropriated (I am not sure if this happened before or after his departure). He built a new life in Chile and became very successful. In the 1990s, after the Communists lost power in Hungary, the government contacted him and actually offered him his apartment back. The place held bad memories for him, and he declined. But this story is an incredible example of how real estate is a powerful tool in long-term wealth preservation. Even through wars, it often reverts back to the original owners. Additionally, real estate is practically inflation-proof over the long term. My wife and I once visited the house of Paul Revere in Boston, and the tour guide told us how much Paul Revere had paid for it. We calculated that it had kept perfect pace with inflation and basically was EXACTLY in line with the average price of a similarly sized home in the US today. Your house may temporarily go down in value during short-term recessions, but when you look at periods of even 20 of 30 years, most homes go up in the value because they keep pace with inflation. Because, again, no matter the economic conditions, everyone needs a place to live!

3. It provides the possibility of appreciation.

   Additionally, sometimes you get lucky and your property doesn’t just keep pace with inflation but REALLY appreciates. For example, we have a client whose ocean-front home in Malibu was purchased for about $350K in the 1970s and is now worth $10M. This is an extreme case, but we have also seen many cases of less dramatic appreciation in other areas that still far outpaced the rate of inflation. This kind of appreciation usually happens because the general area where your home is located becomes vastly more popular over time, usually because of factors external to you, like an influx of celebrity home owners or commercial development. Often, you need to get a little bit lucky to experience this. I don’t recommend that you buy a home with an expectation of this happening, but the fact that it can happen is an additional benefit of real estate that is worth taking into account.

4. It provides tax deduction benefits.

   Owning real estate provides several tax deductions. Firstly, you can deduct the interest on your mortgage. Secondly, you may be able to deduct a number of costs related to the closing of your real estate transaction. Additionally, for commercial properties, you may be able to depreciate the value of your building over a certain period of time for tax purpose, even if the actual market value of the property increases. Contact your accountant or tax preparer to find out what (other) tax deductions may be available to you.

5. It forces you to save (by requiring you to make mortgage payments)

   A very key aspect of a mortgage loan is that it indirectly forces you to save. A monthly mortgage payment is a bill, and therefore, most people find a way to pay it every month, no matter what. But a mortgage payment is also a form of saving, because part of the payment goes back to you. By making your mortgage payments over time, you are contributing to your own net worth by building the equity in your home. For most people in the US, their home is the biggest asset they own, and it is by far the biggest element of their savings and their net worth. Some financial gurus say that buying a home is a “bad investment,” because you could make more money quicker by investing your money elsewhere. That may theoretically be true, but most people do not have the time or attention to spend on those other investment avenues in addition to their main income-producing activity. So for the VAST majority of people in the US, since you need a place to live anyway and for all the other reasons mentioned here, purchasing your own home is an excellent way to start saving.

6. It can provide an income stream if you decide to rent out your property (now or in the future)

   This scenario depends on a number of other factors in your life, so it may not be applicable to everyone. But the fact that it is a possibility is just another added bonus to this list of benefits. After you pay off your home (or even before), you could move into another home and rent our your current one. If you can pull that off, or even pull it off more than once, you could end up with a little real estate empire that will support you in your retirement and that you will also be able to pass onto your kids and their kids, leaving a true legacy for the future.

There are some things to get right while you implement this strategy of wealth building (starting with your own home and then moving to additional real estate investments). I will be happy to assist you further and answer any questions you may have.

You can email me or schedule a Free Brainstorming Consultation here.