Why Should Young People in Pakistan Invest in Real Estate As Soon As Possible?
The answer is simple. It’s because of the economic boom that has been going on in Pakistan for quite some time now, and it will continue to grow at an exponential rate for many years ahead. The current government has done a fantastic job so far, but they are only human and their policies can be changed if enough people get together and demand change. If you have any interest whatsoever in real estate investing, then this article should prove very interesting indeed!
Here is a list of significant benefits of investing in real estate at the start of your adult life.
- You Will Have a Huge Leverage on Your Money
Let’s assume that one million dollars seems like a lot of money to someone who is used to living on $10,000 per month or less. But what about if you could invest just half of that amount into buying property which would generate ten times more income than the original investment? This means that you can double your money by simply investing a little bit every day for twenty years, and there are no taxes involved as well. What’s even better is that once the mortgage is paid off, you own the property outright and can sell it whenever you want without having to pay capital gains tax. So, imagine how much money you could make over those twenty years if you had invested in real estate instead of stocks and bonds.
- You Can Easily Increase Your Wealth with Time
When you buy a stock, you are purchasing a share in the company. The value of your shares depends entirely upon the performance of the business and its future earnings potential. However, when you purchase property, you actually own a piece of land with buildings on it. Even though the buildings may depreciate in value, the underlying land will always increase in value. That is why real estate prices tend to appreciate faster than stock prices.
For example, let’s say that you purchased a parcel of land worth $100,000 last year, and it was selling for $150,000 this year. The price appreciation from last year to this year would be 50%. Now let’s say that after five years, the same parcel of land is still being sold for $200,000. In other words, the price appreciation from last year to this year would be 100%, meaning that you made a profit of $50,000 on your initial investment of $100,000. Over the next five years, you could expect another $50,000 in annual returns as well. This means that your total return over the first ten years would be $200,000, which is a lot more than what you would have earned by investing in stocks and bonds.
- Property Is an Asset That Does Not Depreciate
Stock prices can fall dramatically and cause investors to lose millions of dollars overnight. One of the reasons why we have seen such a huge decline in the stock market recently is because the economy has slowed down significantly. However, property values do not go down when the economy slows down. Instead, they usually increase, especially if the local economy is doing well. For example, let’s say that you bought a house for $300,000 two years ago.
At that time, the housing market was booming and the price of houses increased by 20% per year. So, the value of your house today is $400,000. Now let’s say that the economy has slowed down somewhat and the price of houses has decreased by 10% per year. So, the value of your house today is $350,000. In other words, the price of your house has actually appreciated by 15% since you bought it two years ago. Of course, the opposite is also true; if the economy picks up and the price of houses increases by 20% per year, then the price of your house will increase by 40% in the same period of time. In summary, property does not depreciate during economic slowdowns, unlike stocks.
- There Are No Taxes Involved When You Buy Property
When you buy stocks, you have to pay capital gains tax. Let’s say that you have purchased $100,000 worth of stocks and now wish to sell them. Because the value of your stocks has gone down by 20%, you will have to pay a capital gains tax of 20% on the $80,000 that you originally paid for the stocks. This means that you have lost $16,000 on your investment. On the other hand, when you purchase property, you don’t need to worry about paying taxes. In fact, you will receive a substantial tax deduction if you itemize your taxes.
Let’s say that you purchased a parcel of land for $100,000 two years ago. Then you built a house on it and rented it out for $1,500 per month. After deducting all of your expenses, including maintenance costs, mortgage payments, property taxes, etc., you will end up with $2,000 per month in net rental income. In other words, you made a gross profit of $800 per month.
Since the property was purchased two years ago, you can now claim a depreciation expense of $400 per month (20% of $2,000) on your federal taxes. In addition, you can also deduct the property taxes from your state income tax. This means that you have effectively received a $200 per month tax break for owning the property.
- Real Estate Prices Appreciate Much Faster Than Stock Prices
Another major benefit of real estate investments is that they appreciate much faster than stock prices. It’s very easy to see this in practice. For example, let’s say that you purchased a parcel of land for $100,000 two years ago. Then you built a house on it and rented it out for $1,500 per month. Now let’s say that the price of houses has increased by 20% per year, so the value of your house has increased to $125,000.
In other words, the price of your house has increased by 25% in just two years. If you owned the property for ten years, the price of your house would be $250,000. This means that you have made a profit of $225,000 over the past two years. In contrast, if you had invested the same amount of money into stocks, you would only make a profit of $100,000. In other words, your average annual return on your investment in real estate is nearly three times higher than your investment in stocks.
- Real Estate Is a Safe Investment
One of the biggest benefits of investing in real estate is that it is a safe investment. Stocks are extremely volatile and there is always the possibility of losing your entire investment overnight. For example, let’s say that you purchased a parcel of land for $100,000 two years ago. Then you built a house on it and rented it out for $1,500 per month. Now let’s say that the price of houses has increased by 20% per year, so the value of your house has increased to $125,000.
In other words, the price of your house has increased by 25% in just two years. If you owned the property for ten years, the price of your house would be $250,000. In comparison, if you had invested the same amount of money into stocks, you would only make a profit of $100,000. In other words, your average annual return on your investment in real estate is nearly three times higher than your investment in stocks.
Final Words
As you can see, investing in real estate is a lot more lucrative than investing in stocks. Even though the current economic environment is not favourable for real estate investments, I believe that things will change soon. The reason why is simple; the U.S. dollar is becoming weaker and weaker as a result of the Federal Reserve printing money at an alarming rate. When this happens, the price of commodities such as oil and gold go up dramatically, which makes the price of everything else increase.
