Like many others, you have decided to make your money work for you by investing it. The question is, what should you invest in? Many opt to invest in the stock market, but it can be prone to volatility and unpredictability. Others turn to a more tangible and physical investment, like gold, but a problem with investing in gold is that it is difficult to determine its value, which depends highly on its demand.
Despite the seemingly endless debate, many believe that the best investment is real estate. Of course, investing in real estate is risky and this investment must depend on a person’s need for liquidity. Shopoff Realty Investments, a national real estate investment firm headquartered in Irvine, California, says there are many reasons that investors turn to real estate time and time again as a potential financial opportunity.
When you plan to hold a real estate asset for a long period of time, it can have the capability of providing you with stable and ongoing income. Shopoff Realty Investments says tenant-oriented assets are a good example of this and may provide real estate investors with strong and positive returns.
These returns can also happen quickly if the assets are managed efficiently by seasoned professionals. This is because you may see returns in the form of received rents right away, depending on your tenants’ rent roll schedule.
However, unexpected events may occur that can impede positive cash flows, such as tenant vacancies. The income from tenant-based assets that are invested through a limited partnership are also composed mostly of “passive” income, which typically does not require a ton of additional work from the real estate investor. It is important to remember that when investing in a limited partnership, the partner/investor does lose control of day-to-day decisions, since they are then left to the general partner. When giving up that control, it is of course possible that the general partner could make decisions that could negatively impact your real estate investment.
Appreciation in value
Another compelling reason to invest in real estate is the fact that the market is composed of tangible, physical assets, either in the form of traditional “brick and mortar” buildings, or land. There is always a physical component involved, unlike a stock option which could plummet to zero and leave an investor with nothing. Also, if you’re willing to wait, real estate markets may bounce back from fluctuations and bubbles and have the capability of returning properties to their original value. Of course, there are costs associated with waiting out the market and you may not see the property return to its original value for a longer period of time than anticipated.
Shopoff Realty Investments further notes that real estate is an investment that can allow you to actually create value. While an existing structure may age and therefore decrease in value, you have the option to repurpose the asset to create new value. For example, a vacant, former big box retailer may create a challenge when looking for a tenant in need of such a large space. Instead, the space could be repositioned to create several smaller retail spaces. This can open up the potential renter pool, creating value as the property would now appeal to a wider group of retailers today who are seeking smaller physical footprints.
Depreciation and tax benefits
While appreciation is a benefit to investing in real estate, depreciation can also be considered a benefit, as it allows for various tax deductibles. Depreciation does not apply to land, which is a fixed cost. Depreciation mostly applies to rental properties, as they are subject to “wear and tear,” which decreases the overall value of the property. If your property meets certain requirements, including if you use the property for income-producing activity, if the property has a “lifespan,” and if the property is expected to last more than a year, it may qualify for a depreciation allowance.
Aside from depreciation, a real estate investment can also offer other tax benefits, says Shopoff Realty Investments. The cost that it takes to finance and operate your property can be deducted from what you earn; this may include repairs, maintenance, mortgage interest, property taxes, property management fees, and more.
Beyond these advantages, the appreciation of the value of your property is also sheltered from tax up until the time you sell it. The amount that is sheltered from tax can even increase if you own multiple properties.
Final thoughts from Shopoff Realty Investments
As an investment opportunity, real estate can be an attractive market to tap into. It is important to determine; however, what your goals are as a real estate investor. Do you want to purchase property to rent out, and if so, do you want to be a landlord? Or do you want to purchase a property to “flip” and increase its value to sell at a later date? Maybe both seem like too much work on your part? Shopoff Realty Investments notes that if this is the case, the best course of action may be to engage with a real estate investment group to provide you with a more hands-off approach and leave the heavy lifting to the professionals. The effectiveness of any of the strategies described will depend on your individual situation and on a number of other factors. Ultimately, real estate investing is not for everyone and takes a certain level of expertise and experience to execute correctly.
NOTE: This article does not constitute the rendering of investment, legal, or tax advice. You should always consult with a qualified attorney, CPA, or financial professional on all investment, legal, or tax matters. An investment in a Shopoff limited partnership involves a high degree of risk, including the possible loss of your investment, and is illiquid with an uncertain liquidity date. Information in this article does not constitute an offer to sell or solicitation of an offer to buy any security. Securities offered though Shopoff Securities, Inc. Member FINRA/SIPC