Why real estate investment is the smartest way to build wealth

You’ve reached a stage in your life and career where you have enough wealth to be considering the next step—how to protect and prolong it. It’s an essential step to safeguarding the future, both for yourself as you move toward retirement and for future generations.

The stock market is great. Perhaps it helped you get to this point. But you know it’s volatile. People can become overnight millionaires investing in stocks, it’s true—but you can lose those gains just as quickly. You have very little control over it, and are relying on someone else’s good decisions.

If you’re looking for something different, and Elon Musk’s love of Dogecoin hasn’t convinced you, what’s next? There are all kinds of shiny, wealth-building ideas being thrown around, and you’re looking for the right one. 

Real estate differs from all of them because it offers more control over your investment. You can’t will the stock market to perform better or dictate the value of bitcoin, but you can make smart decisions to increase the value of a property and drive up the return on your investment. 

Ultimately, good real estate investment can put you in the driver's seat where your money is concerned.

First up: Why is real estate investing the smartest way to build wealth?

At Lion Rock, we’re pretty convinced that real estate is the best way to build and grow wealth. But here are the main reasons you should think so too:

  1. Equity Build: Wouldn’t it be great to have someone else pay for your assets? That’s exactly what happens with investment properties: someone else is paying your mortgage. As they do so, your debt decreases, and your equity increases. 

  1. Increasing Value: Another way that equity is built via real estate is through forced appreciation: making improvements to the property. The right improvements increase the value of the property in the short term, as the units will command more rent, and in the long term, when the time comes to sell the property. Properties also appreciate over time. According to the Federal Reserve Bank of St. Louis, even with the recession of 2008 and 2009, the average price of homes grew 30% from 2007 to 2021. As home prices increase, so do rents. Appreciation happens due to inflation protection and rising replacement costs. Inflation drives up the cost of everything, including property values. Labor costs and the price of commodities like wood have skyrocketed, driving up replacement costs. When the cost to build a property like yours increases, the value of your property increases, as well.

  1. Tax Benefits: Even as you build equity, you can deduct the costs of buying and improving the property through depreciation, meaning you can defer paying taxes until a tax event, such as selling the property. This is just one of the powerful tax-planning strategies available to owners of rental properties. For more information, consult a tax professional.

Equity is great, but what about cash flow?

The two don’t have to be mutually exclusive. While equity is the value of your property minus debt, cash flow is the net income from your property minus mortgage payments and operating expenses. In that way, you build equity and create cash flow at the same time. 

With the help of a property management partner like Lion Rock Properties, your investment can generate valuable passive income that you don’t have to sweat to create. It’s not the primary wealth builder you should associate with the property, but it doesn’t hurt to take home a little extra at the end of the month.

What’s the best way to invest?

The benefits of investing in rental properties are clear: If you do it right, you get to build equity, create cash flow, and capitalize on tax benefits all at the same time. What is the right way to invest in rental properties? 

Not doing it alone. 

From analyzing the best property improvements to managing tenants, a team approach is the best approach. Contact Lion Rock Properties to learn what our team can do for you. 

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