100s of titles, one news app for just $10 a month.
Dive Deeper:
Thinking of Buying a Rental Property? Consider These Five Proven Alternatives
One of the most tried and true ways to build wealth is by investing in real estate. Real estate can…
Farmland is More Profitable Than you Think. Discover 3 Simple Ways to add it to Your Portfolio Today
Many real estate sub niches like office space, apartments, shopping malls and self-storage are available to investors. One that is…
Should You Invest in the Tobacco Industry?
Despite many perceiving the tobacco industry as detrimental to society, most tobacco companies are investor favorites due to their extraordinary…
Warren Buffett Owns Shares of Nu Holdings, Should You?
Warren Buffet’s Berkshire Hathaway (BRK.A, BRK.B) has made a hefty investment in Brazilian fintech company Nu Holdings (NU). The company…
One subscription that gives you access to news from hundreds of sites
3 Simple, Unconventional Ways to Invest in Startups
Startup companies can have the potential to become the next Facebook, Google or Amazon. Being able to invest early in…
Elon Says Twitter Deal On Hold: What You Should Know
After running the hard mile to mobilize finances for his Twitter Inc. (NASDAQ: TWTR) buy, Elon Musk said early Friday the deal…
Get all your news in one place
Latest Business news:
Coles introduces gender affirmation leave
Grocery giant Coles is introducing 10 days paid gender affirmation leave for its trans and gender-diverse staff.
Read news from The Economist, FT, Bloomberg and more, with one subscription
Learn More
Oil, gas bosses mull zero-emission options
The energy transition must not compromise energy security, which rules out 'de-fossilisation', Australia's biggest oil and gas industry gathering has…
Asian markets mixed after US retail data boosts Wall Street
Hong Kong (AFP) - Asian stocks were mixed Wednesday following a strong start in some markets, which took the lead…
McDonald's, Wendy's Sued Over Burgers Not Being Big And Juicy Enough
A Suffolk County resident is reportedly suing McDonald’s Corp (NYSE: MCD) and The Wendy's Co  (NYSE: WEN), accusing them of defrauding customers by not sell
Metricon to meet with Victoria’s treasurer after company denies rumours of collapse
Acting chief executive of Australia’s largest homebuilder says company will continue business as usual after founder’s death
From analysis to good news, read the world’s best news in one place
Poor Countries Face a Mounting Catastrophe Fueled by Inflation and Debt
Before war ravaged Yemen, Walid Al-Ahdal did not worry about feeding his children. At his hometown near the Red Sea,…
The 'bots' at heart of Twitter buyout row
San Francisco (AFP) - Elon Musk's pausing of his bid to buy Twitter due to questions over "bots" has put…

Should you Hold off on Investing in Real Estate?

By Dalton Brewster

It can be tempting to want to avoid investing in real estate. Traditional forms of real estate investing like buying rental properties can be difficult since they often require substantial down payments. Other forms of real estate investments like real estate investment trusts (REITs) and REIT exchange-traded funds (ETFs) have seen losses too.

The MSCI US REIT index, which tracks domestic REITs, is down 8.34% since the beginning of 2022. Regardless, real estate offers several long term advantages like tax deductions and cash flow. It’s also important to invest in the right real estate, meaning sub niches that are more likely to continue to be in demand.

Tax Advantages

Taxes play a significant role with any type of investment. Some investments are taxed at higher rates, while others are hardly taxed at all. Real estate offers many tax advantages like being able to deduct depreciation, repairs, maintenance and insurance costs.

Property taxes and mortgage interest are deductible, up to certain limits. For example, you can deduct mortgage interest on loans up to $750,000 per the 2017 Tax Cuts and Jobs Act (TJA). This act also created a limit of $10,000 for deducting a combination of state and property taxes.

Many REITs pass down common tax deductions like a 20% deduction on pass-through income through the end of 2025 to investors. President Biden has also proposed higher tax plans, including tentative $1.5 trillion individual tax increases, making it even more important to minimize tax liabilities.

Cash Flow

Even if property valuations fluctuate, one advantage can remain more constant: cash flow. Real estate offers cash flow in the form of tenant rents, dividends and interest income. Rents increase during times of inflation, which is why real estate is seen as an inflation hedge.

Cash flow can be seen as net income or revenue less expenses. Some ways to increase cash flow include ensuring that you have low tenant turnover and quality tenants that pay rent on time and that don’t damage the property.

Investing in REITs can offer higher cash flows than other options. Per the Internal Revenue Code, REITs are required to pay out 90% of income as dividends. This explains why the average REIT yields 2.9%, which is more than double the 1.3% average yield on the S&P 500.

Related: This REIT You've Probably Never Heard of Has Paid a Dividend Above 8% For The Last 5 Years

Invest in the Right Real Estate

The COVID-19 pandemic devastated many real estate sub niches like office buildings and shopping malls. Stores were closed during lockdowns, and more Americans started to work remotely.

Certain in-demand sub niches have the potential to yield continuing returns regardless of the economy or a pandemic.

Some of these sectors include self-storage and apartments. Self-storage is expected to bring in $49.24 billion of revenue in 2024. Also, people will need places to live, which is why apartments are usually more recession-proof than other real estate sub niches.

Related: Benzinga’s Favorite Passive Real Estate Investment Offerings

Bottom Line

It seems like many investment classes have seen losses during the first half of 2022. The S&P 500 and the MSCI US REIT index have declined too. With high costs, it’s easy to question investing in physical real estate as well.

However, real estate will always be a good long-term investment for several reasons, especially because it offers tax advantages and cash flow.

Photo by Andrey_Popov on Shutterstock

What is inkl?
The world’s most important news, from 100+ trusted global sources, in one place.
Morning Edition
Your daily
news overview

Morning Edition ensures you start your day well informed.

No paywalls, no clickbait, no ads
Enjoy beautiful reading

Content is only half the story. The world's best news experience is free from distraction: ad-free, clickbait-free, and beautifully designed.

Expert Curation
The news you need to know

Stories are ranked by proprietary algorithms based on importance and curated by real news journalists to ensure that you receive the most important stories as they break.

Dive Deeper:
Thinking of Buying a Rental Property? Consider These Five Proven Alternatives
One of the most tried and true ways to build wealth is by investing in real estate. Real estate can…
Farmland is More Profitable Than you Think. Discover 3 Simple Ways to add it to Your Portfolio Today
Many real estate sub niches like office space, apartments, shopping malls and self-storage are available to investors. One that is…
Should You Invest in the Tobacco Industry?
Despite many perceiving the tobacco industry as detrimental to society, most tobacco companies are investor favorites due to their extraordinary…
Warren Buffett Owns Shares of Nu Holdings, Should You?
Warren Buffet’s Berkshire Hathaway (BRK.A, BRK.B) has made a hefty investment in Brazilian fintech company Nu Holdings (NU). The company…
One subscription that gives you access to news from hundreds of sites
3 Simple, Unconventional Ways to Invest in Startups
Startup companies can have the potential to become the next Facebook, Google or Amazon. Being able to invest early in…
Elon Says Twitter Deal On Hold: What You Should Know
After running the hard mile to mobilize finances for his Twitter Inc. (NASDAQ: TWTR) buy, Elon Musk said early Friday the deal…
Get all your news in one place