_{SOURCE: investopedia.com}

To invest or not to invest in real estate? That is the question.

With the housing market constantly changing, it can be hard to know if it’s worth it to take the plunge. But one thing is for sure, owning property is a great way to build wealth and generate passive income.

Here is why real estate is considered a good investment:

Cash Flow

A key benefit of real estate investing is its ability to generate cash flow.

Tax Breaks and Deductions

Real estate investors can take advantage of numerous tax breaks and deductions that can save money at tax time.

Appreciation

Real estate values tend to increase over time, and with a good investment, you can turn a profit when it’s time to sell. Rents also tend to rise over time, which can lead to higher cash flow.

Build Equity and Wealth

As you pay down a property mortgage, you build equity—an asset that’s part of your net worth. And as you build equity, you have the leverage to buy more properties and increase cash flow and wealth even more.

Portfolio Diversification

Another benefit of investing in real estate is its diversification potential. Real estate has a low—and in some cases negative—correlation with other major asset classes. This means the addition of real estate to a portfolio of diversified assets can lower portfolio volatility and provide a higher return per unit of risk.

Real Estate Leverage

Leverage is the use of various financial instruments or borrowed capital (e.g., debt) to increase an investment’s potential return. 

Competitive Risk-Adjusted Returns

Real estate returns vary, depending on factors such as location, asset class, and management.

Inflation Hedge

The inflation hedging capability of real estate stems from the positive relationship between GDP growth and the demand for real estate. As economies expand, the demand for real estate drives rents higher. This, in turn, translates into higher capital values. Therefore, real estate tends to maintain the buying power of capital by passing some of the inflationary pressure on to tenants and by incorporating some of the inflationary pressure in the form of capital appreciation.

Real estate is a tried and true way to build wealth and secure your financial future. Question is, are you ready to make a smart investment that will pay off in the long run?