Graduate Call Notes 9-18-14: Four Benefits of Owning Real Estate

Today on our Real Estate Graduate Call we discussed the four main benefits of owning investment real estate. They are many benefits beyond these four but these tend to be the standouts.

1. Income: Our main goal of owning and investing in real estate is to bring in more income. This can motivate many to work out the best deals possible to have the most amount of income. Or course that can come in the form a good profit after one has bought, rehabbed, and re-sold a property at a retail price. The other relates to the many aspects of holding onto a property. The most typical is renting out a property to tenants and with the income received, paying our expenses each month including gaining a monthly profit.
2. Equity: When it comes to holding onto a property we can gain a good amount of equity over time. This can happen in a several ways. I’ll describe two of the most common ways. One is that every month our tenant pays us the rent that allows us to pay down the principle on the mortgage. This allows us every month to gain a larger equity margin on what the property is worth versus what we owe on the property. Next is appreciation. This doesn’t always happen at a steady pace but history shows that over the years properties tend to go up in value. This also adds to our equity in the property as well.
3. Depreciation: Because of the way the tax code is set up we as investors have the ability to write off depreciation on the value of the building. This does not include that of the value of the property though. But, this is great for legal tax write-off every year. This can be written off for up to 37 ½ years after we have purchased the property.
4. Security: When we discuss this area we have to relate it to other types of investments. Real estate is great on security knowing that it is a tangible investment that is easy for others to see the value. If we had shares in a stock as a reference we know that the value of the stock can skyrocket up or down quickly. With real estate it is a slow process for going up or down in value. It is that much more secure because it is not as volatile. We also know others consider it secure because a investor with decent credit can put 10-20% down on the total value of the property and a lender will loan the rest. That is because of the secure value of real estate.

Millenials see the value in Real Estate:

We also discussed more on how the “millennials” are really more interested in having their own home than has been preciously reported in past articles. This is great to see that they still see the value in real estate as a security tool that can build their portfolio just as their parents and grandparents did. This article was published this week in Bloomberg Businessweek.

Millennials Want Houses, Just Like Everybody Else

The proportion of homeownership among young adults has fallen from a third to a quarter over the past half-century. But the idea that today’s millennials are allergic to deeds and mortgages is a myth, says a report based on a survey of more than 1,000 Americans aged 18-29 by the Demand Institute, a nonprofit jointly operated by the Conference Board and Nielsen

“Like most myths, there is some truth here—but only some,” says the report’s introduction. The true part is that millennials are financially squeezed because of “graduating into a weak job market with growing student loan debt,” Jeremy Burbank, a Demand Institute vice president, said in a statement. The false part, the report says, is that millennials don’t want to own their homes.

“Attitudinally, they seem very much in line with what we see with older adults,” Louise Keely, president of the Demand Institute, tells me in a pre-release interview. “The will is there, but when they’re going to achieve it—and how—is the biggest open question.”

Sixty percent of those surveyed said they would eventually own a home and 24 percent said they already do. Only 16 percent said they won’t own a home. Three-quarters believe homeownership is an important long-term goal, and 73 percent believe it’s an excellent investment. “Based on stated aspirations, there is no indication that this generation will be any less likely than previous generations to own their homes,” the report says.

Of the three-quarters who said they planned to move in the next five years, 71 percent said they were doing so for a better home or apartment, 59 percent for more privacy or space, 50 percent to establish their own households, and 48 percent to own, not rent. (Some cited multiple reasons.)

Although marriage rates have been falling, single millennials still think they’ll get hitched. While only 30 percent of those surveyed said they were married, 64 percent said they expected to be married in five years. And while only 36 percent of those surveyed had children, 55 percent expected to have children in five years.

Student loan debt is associated with lower homeownership rates. Among college grads aged 30-34, 67 percent of those with no student loan debt own homes, vs. only 51 percent of those carrying student loan debt.