Diversify & Building a Portfolio

Buying investment properties is a great way to grow your wealth and hold onto a hard asset that can be passed down to future generations, build your net worth, and provide monthly income with little time or effort on your part.  Stocks have a long term capital gain tax rate of 15%. You can also offset your stock gains by your losses. But check out real estate tax breaks: you can deduct mortgage interest and property taxes.  You can claim the first $500,000 of profit from your home’s sale tax free.  There are also rental and commercial property tax breaks available such as deductions on maintenance and repair expenses on rentals, depreciation, property wear and tear.

For those of us who are investors, real estate has been considered as a decent and long-term investment that can provide us with some reasonable level of diversification. Its historical returns have been somewhat lower than stock market returns over the long run as measured over the length of a few decades: from 1978 to 2004, housing has turned in an annualized return of 8.6% (commercial real estate has delivered 9.5% in that timespan), whereas major stock market gauges have given us 13.4% returns.  Furthermore, where stocks can raise and drop sharply, returns on properties are much less volatile.

Unlike stocks and bonds, you can always pull your money out without getting taxed.  This is because the government sees it as a liability, not income.  Being able to pull money out to pay for children’s college, a vacation, or anything else you can think of adds more security and flexibility to your portfolio.