by | 09, Oct 2022

6 Reasons To Invest In Real Estate

There are SO many reasons to invest in real estate. It’s hard to pick the best reasons. But we’ve gone ahead and done it anyway!

So, if you’ve got some money to invest… and you’re on the fence about where to put it… let us help you out.

Commercial Real Estate!

As you know, we specialize in value-add multifamily real estate… it’s in the name of the podcast show you’re listening to. With that said, this is going to be slightly biased toward that class of real estate investing.

Here are the top 6 reasons to invest in real estate:

  1. Cash-Flow
  2. Debt Paydown
  3. Hedge Against Inflation
  4. Appreciation
  5. Tax Benefits
  6. Illiquidity

Want to know more?

Find out on this week’s bonus episode of Multifamily Investing Made Simple!

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Tweetable Quotes:

“There’s a lot of investments out there, specifically stocks or crypto that you can invest in. And theoretically, it should go up in value, but you have to sit there and wait. But apartments, you get paid to wait.” – Dan Krueger

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** Transcripts

Top 6 Reasons To Invest In Real Estate

[00:00:00] Dan: So what are the benefits of investing in real estate? That is what we’re diving into today.

Hey, what’s going on guys? Dan Quer and Victors Capital. And today we’re gonna talk about the benefits of investing in real estate. Now, To be clear, Invictus Capital is very niche. We focus on value add apartment buildings, and so that’s what we’re gonna be talking about today. We’re not talking retail, we’re not talking farmland, we’re talking apartment buildings.

My opinion, one of the best benefits of investing in those asset classes is. Cash flow. When you pick up an apartment building or if you’re an LP and a syndication, you’re gonna start to generate yield. You’re gonna get a monthly, quarterly. Sometimes it’s annual, but typically you’re gonna get a quarterly distribution, which is the cash flow coming out of that property.

And this is great. Uh, there’s a lot of investments out there, specifically stocks or, or, or crypto that you can invest in. And theoretically it should go up in value, but you have to sit there and. But apartments, you get paid to [00:01:00] wait and so you get that income in the meantime while you wait for that appreciation and all the other benefits to take place.

In my mind, this is one of the best parts is every time you get an apartment building or get into a syndication, you just added an extra paycheck to your income stream. Now the next thing is probably one of the less intuitive. Things that’s a benefit about investing in apartment buildings, and this is the debt pay down.

A lot of people don’t think about this, but it’s actually a pretty cool concept. Now, that cash flow that we just talked about is gonna be net of all the operating expenses at a building, including the mortgage. So that means the residents of the building are actually paying the mortgage for you. Best part about this is that the rate on your mortgage is probably, should be, uh, a decent amount lower than the rate of inflation.

So that means as time goes on and as you’re paying that mortgage off, uh, that mortgage is getting paid off with dollars that are worth less and less and less, which is a really interesting concept. So if your interest rate is, let’s say 4% on your loan and inflation is 6%, that means every year you’re paying back with.[00:02:00]

98, 95, 90 cents on the dollar as time goes on. This is a very powerful concept because as that mortgage gets paid down, that’s more equity in your pocket, just like when you pay off the mortgage on your house that you live in. So it’s, it’s, you’re kind of coming at it from both angles. The property’s gonna be appreciating, which will get to in a second, and at the same time that mortgage balance is getting paid down and your equity, that gap between those.

Is growing and growing and growing. So it’s a very powerful concept. And the next most important, and one of the best benefits of apartment buildings is it’s a hedge against inflation. Now, I just talked a little bit about how inflation plays into, uh, the mortgage dynamic. Big thing here to be aware of is that apartment buildings are a scarce, fixed asset.

And in a world where. Governments around the world are printing more and more money every day. Uh, there’s more and more dollars in existence, but there aren’t gonna be more and more places to live. There’s only so much land and so many buildings out there. And so in an inflationary environment, you wanna focus on investing things that have a fixed or limited supply.

And real [00:03:00] estate is one of the best examples of this. So it’s a great hedge against inflation. And the next thing is going to be the appreciation. Now, this is kind of tied into a few things that we’ve talked about already here, but these things appreci. On average about six or 7% a year. So every 10 years or so you’re building theoretically should be doubling and valued.

Now this doesn’t necessarily, um, uh, align with the value add model. We tend to accelerate that timeline quite a bit. But on any average building in a good area that you’re just keeping up, you’re not even executing a value add model with. That should double about every 10 years or so. So in addition to that mortgage getting paid down, those cash flow checks coming in, the value of the asset is gonna appreciate quite nicely and add more equity to your balance sheet.

And next is the tax benefits. Now, some people might be very aware of this because it’s one of the only reasons they invest in real estate and some people might not be that aware of it. Ultra high net worth people are very high income people are gonna be very acutely aware. And if you’re just getting started, if you’re a little bit younger, if you’re in a [00:04:00] lower tax bracket, this might not be in your radar yet, but it should be.

Real estate is one of the most tax advantageous assets to invest in. Now, quick disclaimer, I’m not a cpa. This is not tax advice in any way, just trying to illustrate a concept, but real estate is a very tax advantageous asset to invest in, basically because the government wants to incentivize people to invest in real.

It provides a very valuable resource to society. You provide housing for people that either can’t afford to buy their own place or just don’t want to, and that’s incredibly valuable. So what the government does is they create incentives via the tax code to incentivize people to be property owners and to lease those properties out.

So we can do this a bunch of different ways, which are not gonna dive into in this video. We’ve done some, um, uh, cost segregation slash depreciation videos, which will link to in the description, but in essence, The government is incentivizing people to invest in real estate because it’s a very valuable resource society.

So we get to accelerate the depreciation and a lot of that cash flow that’s, uh, coming out of these properties that we talked about [00:05:00] before is gonna be either very, uh, light on tax or tax deferred entirely. So it depends on how the deal’s structured and there’s a lot of nuances here. But just be aware that the tax benefits is one of the best parts.

Owning real estate. And last but not least, is the illiquidity of the asset class. Now, a lot of people might think that this is not a benefit, that this is actually a bad thing, but in my mind it’s actually a good thing because it reduces the volatility. One of the reasons that you see the stock market flying up and down, uh, so aggressively on a daily basis.

Is that because is is because people can get in and out with the click of a bu they have an emotional reaction to something in the news or just feel like they want to get in or get out. They can do so, and that creates wild swings and prices and real estate specifically multi-family is a heck of a lot more stable than the stock market because of the illiquidity takes.

I’d say at, at the quickest, a couple of weeks, but most transactions take a couple of months. Whether you’re buying or selling a building, it takes a long time, so you’re not gonna see a lot of emotional trading in [00:06:00] multi-family. Things are gonna be a lot more stable in this asset class than in the liquid asset classes like stocks.

So I hope this clears up some of the questions you might have about the benefits of investing in real estate, and I’ll see you guys in the.

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