The main reason most people choose to invest their money is to safeguard a financial cushion way past their retirement.
You invest a little of your capital to accumulate wealth and create a funnel for passive income that will reap you financial benefits in the long term. In this day and age, you have many options to invest your money but the main idea is to choose an investment strategy that will give you the highest return on investment. So, which one is it? Real estate investing or 401K? Continue reading to find out.
Related: Top Six Real Estate Investment Strategies
The Value Proposition of Real Estate Investing
To make money in real estate is congruent with understanding the market and honing in on the right real estate investments in the right locations for big gains in the long term. Real estate investing has many financial perks and should be treated as a business without exception. Just like any business, real estate investors are responsible for growing their returns and capitalizing on profitable investment opportunities. Savvy real estate investors diversify their real estate portfolio to scale the business and find profitable properties that will reap positive cash flow returns and long term appreciation for the biggest rewards.
Smart investment decisions begin with having a business plan, setting your financial goals, conducting the right market and rental property analysis, understanding the current trends in the market, and acting on the best strategy in a seller’s market vs a buyer’s market. All these factors contribute to the success of your real estate portfolio and distinguish the self-made millionaires from the rest who are trying to make it.
6 Key Benefits of Real Estate Investing
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Income
Generating passive income is one part of the equation; the other part is there is no profit quota to how much you can be earning in real estate investing. If it is a short term rental strategy, you are free to set your dynamic pricing strategy, respective to period and season. And if you choose traditional real estate, you can capitalize on the best locations to reap the highest financial rewards. Real estate gives you the leverage to diversify your investment portfolio, build equity, accumulated appreciation on your real estate investments and make millions in due time. You are your own boss in real estate investing and it is up to you how big you want to grow your business.
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Depreciation
Another key benefit to real estate investing is the depreciation of your real estate property over time. Although depreciation implies loss, it is an advantage in real estate investing as well as your bottom line. Why you might ask? Well simply put, real estate obviously depreciates but the land itself does not. Land is a fixed cost and in turn, the law allows real estate investors to write off depreciation, which results in reducing the amount of taxes paid on the property while land is appreciating in value simultaneously. The more depreciation, the more tax benefits earned, thus creating more equity for the owner over time.
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Equity build up
Equity gives real estate investors leverage to accumulate wealth and diversify their portfolio for the highest return on investment. As a real estate investor, your tenants pay off your mortgage payment and rental expenses. This means taking out a mortgage loan to buy a rental property will help you build equity as the principal amount of the loan is reduced and equity increases simultaneously. In a nutshell, the tenants end up paying off the loan on the rental property, not the investor.
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Appreciation
If given a good location, your real estate property will increase in value and sell for a lot more than its original price. This is one of the best incentives to invest in real estate because it allows you to make bigger profits on your real estate investment down the line.
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Leverage
Real estate investing gives you leverage to buy more real estate, build equity, own your own business, choose your tenants, diversify your portfolio, and hire the right stakeholders to grow your business and bottom line.
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Tax advantages
Another key perk is the tax benefits of owning a real estate business. If you want to learn more about the tax benefits of running a real estate business, click here.
Investing in 401K
Unlike real estate, investing in 401K means payroll deduction. Simply put, investing in 401K is an employer-sponsored retirement plan; if your employer offers a 401k, you can contribute a percentage of your income, which is automatically deducted from your paycheck. The upside to this investment plan is the fact that it is helping you save for retirement without having to do anything at all.
The Benefits of Investing in a 401K Plan
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Tax advantages
Similar to real estate investing, a 401K plan lowers your taxable income. Furthermore, the dividends and capital gains earned inside your 401(k) are not subject to taxes until you begin withdrawing from the plan.
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Matching Contributions
The best part about a 401k plan is the match! If your employer matches your contributions, try to contribute enough to get that full match. Who would say no to free money? Enough said.
Which Investment Strategy Wins?
We cannot tell you which investment strategy is the best fit with your long term visions and goals, but one thing for sure, real estate investing is a far superior option if you want to create a dynamic channel of passive income and triple your money for many years down the line. Real estate investing has created many success stories and made a lot more millionaires than 401K. Real estate investing gives you the autonomy to invest your money and grow a small business under your complete authority, whereas a 401k plan has limited options and only generates you passive income. So long story short, anyone can start investing in real estate and kickstart a lucrative business venture that will give financial stability and independence for decades.
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Related: How to Pick the Best Investment Property Strategy for You