You’re an investor. A smart one. And young. One of the many important financial decisions you will make is owning a home vs. renting.
You’re building your investment portfolio, with a little money in stocks and bonds, a mutual fund, or maybe even a real estate investment trust (REIT).
But you’re still renting, and wondering whether you should consider buying your own place.
The one-word answer? Yes. Owning real estate is one of the best investments you can make.
Why should I own real estate?
First, because everyone needs a place to live.
The value of your real estate increases over time if several factors — including land, location, and economy — work together.
Owning the place you call home is a tangible investment you can touch, unlike your investments in securities, where your money exists somewhere in the stock market but firmly out of reach.
That said, the main reason why you should own real estate is that it builds wealth over time in four main ways.
1. Real estate appreciates.
If you buy real estate on the best slice of land you can find, in a good location backed by a strong economy. Let it appreciate over the years, and sell it for a good return on your investment.
The value of your real estate increases over time if several factors — including land, location, and economy — work together.
- Land: Property on a nice slice of land—accessible and close to amenities and recreational pursuits—will appreciate well over time.
- Location: With a growing population, modern infrastructure and a thriving economy, the right piece of real estate with be driven in value thanks to high demand. Do some research to find a new, burgeoning community or an older revitalized one, and buy property there before prices go up.
- Economy: A strong economy is the backbone of any thriving location. It encourages population growth, increasing land value and therefore property value.
2. Real estate can generate passive income.
If you don’t want to live in the real estate you buy, you can rent it out. Just make sure you have either the time and skills to act as a landlord, of the money to pay someone to manage the property for you.
3. Real estate builds equity.
Equity in real estate refers to the difference between how much your property is worth and how much you owe on your mortgage. Your equity builds as you pay off your mortgage, opening you up to more opportunities to invest in more real estate. The more real estate you own, the more cash flow and wealth you generate over time.
4. Real estate investing hedges against inflation.
As real estate prices increase with inflation, so does your rental income and the value of your real estate. This parallel relationship acts as a natural buffer between you and increasing living costs.
The bottom line
Owning smartly chosen real estate is a fantastic long-term investment strategy, and the younger you are when you buy property the better. Generating wealth takes time, so the more time you have to generate it, the more you end up with down the road.
