There are five main reasons why many sophisticated investor have real estate as part of their long term investment portfolio:

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1. The Power of Leverage

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2. Positive Cashflow

 

3. Principal Reduction on the Mortgage

 

4. Asset Appreciation

 

5. Combat Inflation

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1. The Power of Leverage

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Real estate is a "hard asset" which makes financing easier. This means that you, the investor, can benefit from leverage and

substantially increase the return your investment makes. Based on a typical 25% down payment, the return dramatically increases as compared to a non-leveraged investment such as stocks or mutual funds.

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2. Positive Cashflow

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Real Estate is a cash generating investment particularly when considering the long term. It allows you to have someone else pay off

the mortgage, taxes and maintenance. After all expenses are paid the investment provides cash flow that keeps up with inflation.

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3. Principle Reduction on the Mortgage

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As tenants pay rent, they cover the mortgage payments, taxes, and utilities. They also help to pay off a portion of the principle on the mortgage with each month of rent that they pay. Over the first 5 years of a mortgage on a $450,000 property the mortgage pay down is approximately $30,000.

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4. Capital Appreciation

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Through the selection of the correct property, in the right town, in the right areas, one can begin to increase the appreciation above market trends. Include additional activities such as value added enhancements, creative marketing, and other efforts, a sophisticated investor can drastically force the appreciation of a property. This is a unique feature of investing in real estate that other investment vehicles do not offer and, is in many cases, generally the secret to additional profits.

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5. Combat Inflation

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In times of inflation (as are being anticipated in the coming years), when purchasing power is declining, individuals as well as investors seek "hard" or "real" assets to maintain wealth. Real estate is an excellent vehicle to hedge against inflation as its value increases at least as much as (and historically more than) the rate of inflation.