Merit of Real Estate Investment
Stable Monthly Residual Income
Usually Real Estate Investment yields higher return than any other types of investments so it’s possible to gain steady income thanks to limited possibility of rent change. In case you become disability, real estate works for you 24-7 to bring you income.
Checking account 0.02%
Saving account (10 years) 0.2%
Government Bond (10 years) 1.2%
Foreign currency deposit 3.7%
Japanese Real Estate Investment 6%+
Typically other types of investments can bring in cash when they sell. On the other hand, you can obtain cash by owning real estate. This is often overlooked but it is such an important merit in term of reinvestment.
With the rental income gained you can invest in other real estate properties that makes more cash. Once this money making process is set and ready to go, you can create a system where money makes more money.
Using Financial Leverage
Financial leverage is one of the most exciting parts in Real Estate Investment.
Financial institutions such as banks do not loan out directly for stock investment or any other investments. However they are willing to give you a loan for Real Estate Investment. In other word, Real Estate Investment can be done with someone’s money. As a result, the rate of investment return to your own money comes out high and you can also speed up creating your financial asset comparing to using all your cash to invest.
Invest with Cash:
Gross Yield 9% (9 mill/100 mill)
Invest with Loan:
Down payment 10 million, 4% APR , 90 million Loan
Loan Interest 36 million (90 million x 4%)
Gross Yield 54% ((9 mill – 3.6 mill) / 10 mill cash)
By using a bank loan, the rate of investment return to your money rises from 9% to 54%.
As you have seen, using financial leverage can boost your real estate investment faster and better.
No Loss Cut
Unlike stock investing or Forex, there isn’t any loss cut in Real Estate Investment.
Even if real estate price drops dramatically for some reason, as long as monthly loan repayment is done, there is no worry about early full amount loan repayment or any loss cut.
Strong to Inflation
Inflation is the situation where the value of currency drops when the value of goods rises.
The reason why real estate is strong to inflation is that the price of real state rises along with the rise of goods price.
As an example, let’s say that you have 10 million JPY in cash.
Its price of 10 million mansion for sale at the time will rise when inflation happens. Let’s assume its price has become 15 million. If you had not purchased the property before the inflation, the value of cash would stay at 10 million. However if you had invested in it with 10 million cash back then, the value now would be 15 million, which turns out that you succeed in avoiding a decrease of your asset value.
Also thanks to the inflation, the loan amount would decrease if you use a bank loan because the value of currency has dropped. Inflation works favorably to a borrower.
For these reasons, Real Estate Investment is strong to inflation.
Strong to Deflation too
In contrast to inflation, deflation is the situation where the value of currency rises when the value of goods decreases. However rent usually does not go down like any other goods. On the other hand, the interest paid to the bank tends to drop, which makes a cash flow higher. This would work favorable to Real Estate Investment that aims to obtain income gain.
Also there might be a possibility that you can purchase a property at a lower price due to the deflation.
In the deflation period, you can benefit a merit of Real Estate Investment.
In Real Estate Investment, the reach that you can control is quite larger comparing to other type of investments.
For example, in stock investment you cannot control a company directly because you have purchased its share.
What you could do may just be joining its shareholders’ meeting once a year.
Real Estate Investment, on the other hand, gives you a control over managing properties, finding new tenants, reforming and so on. Having a space and freedom to make your own decisions can work positively towards value-up of your properties. That is the key to increase investment returns.
Easy to Outsource
Once you filled in your properties with tenants, there isn’t much to do as a landlord.
There are real estate managing companies out there so you can outsource property management work to them.
Having a trusted partner in your team enables you to make your own time and make a great team to run stable real estate business. This is how unearned income would be created.