5 Reasons Every Entrepreneur Should Invest in Real Estate With 90% of millionaires finding profitable income streams, tax advantages, and recession-resistant assets, you can't afford to ignore real estate any longer.
By Tamar Hermes Edited by Chelsea Brown
Opinions expressed by Entrepreneur contributors are their own.
Like most entrepreneurs, you bury yourself in your business — between hiring and managing employees, daily tasks and masterminding how to scale your business. Every dime goes right back into feeding the growth of your company. You can't consider one more item on your to-do list, especially an endeavor like buying real estate. I'm writing this article to change your mind.
Currently, you have all your eggs in one basket without a large safety net. A slow month or a quarterly projection that misses the mark can be extremely stressful. I believe there is a way to mitigate some of the emotional rollercoasters by owning assets that can work for you while you work on your business. After all, real estate investors make up 90% of millionaires. As a savvy entrepreneur, I doubt you would want to take a pass on those odds.
Related: 8 Ways Real Estate Is Your Smartest Investment
Now that I have piqued your interest, I'll give you five reasons you should invest in real estate and ways that you can take action today.
1. Equity in a property is available for a large cash injection through a refinance or HELOC
If you buy a property over time, it will go up in value. The amount between your purchase price and the increase is all profit. You can refinance that money and owe no tax on it, or if it is a primary home, you can get a HELOC against the mortgage. I know a few business owners who have needed a few hundred thousand dollars to grow their businesses and get the money quickly, because they owned real estate. I'm not advocating spending irresponsibly, but there are times when the influx of cash is needed — and fast. It would be nice to have that safety net.
2. Take massive tax deductions by owning your building
If you are running a business where you need retail, warehouse or office space, consider buying the building instead of renting. I know this isn't always possible, but if you are saving money and investing in the stock market or paying a very high monthly rent, why not take those funds and use them for an asset? You will save money on rent. You may also have a building where you can have tenants covering your mortgage. You get large tax deductions and can even take advantage of solar credits. The benefits are endless. Buying a building may not be feasible if you are in the early stages of growing your company, but it can certainly earn a spot in a three-year business plan.
Related: 8 Proven Ways to Make Money in Real Estate
3. Create an extra income stream that generates profits whether you work or not
I believe in having multiple income streams, especially those that pay you for doing no work. I am talking about cash flow. After paying all your bills and mortgage on a property, the money you earn is yours to spend. It can be a sizeable amount, depending on how many assets you own and the profit margins.
4. Reduces volatility if you are investing solely in stocks and an inflation hedge
Most income coming into your business generally goes right back into your business. Yet, when paid personally through your company, you are likely to create a savings account and invest it in stocks or mutual funds. You could take that savings and invest in real estate. Stocks won't give you many of the benefits shared in this article. Also, if your tenants cover your mortgage on a property, it doesn't matter if the value of your asset goes down temporarily. You could potentially continue earning income from the property if you are cash flowing, regardless of what the market does. With all the variables of running a business, reduce your stress level by knowing you don't have pending bills due.
Additionally, if inflation rises, the currency decreases in value. It takes more of it to make the same purchase. If you buy a property with a fixed-interest mortgage, your monthly payment is based on the dollar's value at the time of purchase. As you make payments over the years, you're paying with cheaper dollars as inflation rises. If you aren't convinced, remember the entire island of Manhattan was purchased in 1626 to the Dutch for $24 of beads and trinkets.
Related: How To Get Started in Passive Real Estate Investing
5. Someone else does the work while you still get great returns — if you invest passively
Imagine if, while running your company, $10,000 was deposited into your account every month? You can invest in syndication deals where you are 100% passive and collect sizable returns. These are large multi-family storage units, industrial buildings and mobile home parks, where someone manages all the moving parts of the deal and invests your money while you earn the profit. In addition to all of this, you can take advantage of depreciation. The amount of passive loss you declare again by passive gains is tax-deductible.
"But is it risky or complicated to get into real estate?" you ask. It isn't as complicated as other investors want you to think. The more competition in the marketplace, the harder it is for real estate investors to find deals. I believe there is enough room for everyone in every market, so I want you to know about this best-kept secret. Buying real estate is infinitely easier than building a profitable business. In other words, you can do it. As an entrepreneur, you are driven to success and owe it to yourself to use every tool possible to achieve your goals. I don't know anyone who purchased a real estate deal at the right price and ever said that buying real estate wasn't a fantastic move for every aspect of their lives. After all, 90% of millionaires can't be wrong.
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