Investing in real estate has been one way to build wealth. And it makes sense to buy real estate even in this decade —if you are looking for a long-term investment.
The real estate market had its ups and downs, but, overall prices have increased over the years. This is even true for the higher priced real estate markets.
Whether you’re buying vacant land as a long-term investment, purchasing a rental property or flipping properties for a quicker profit, you can make money in real estate.
Real estate is a tangible asset with infinite possibilities
You always need a place to live and even if your life circumstances change, real estate can turn into an investment instead of your primary residence.
If your property is in the right location, it’s easier to earn a profit from your investment.
But that’s not all.
Real estate investors also have more flexibility.
Your options will go beyond holding and selling. You can rent the property, enter a long-term lease or turn it into a short term rental using Airbnb, among other options. You can live in your property or convert it to a head office or a store–and you won’t even have to worry about the rent, especially if you own property in a prime location.
Property prices won’t always move up, but by attracting the right kind of buyers, it’s possible to turn a sizeable profit in real estate.
It’s easier to predict which properties have the best potential
If your goal is to realize gains over the long term, it may make sense to invest in markets with the highest potential for appreciation.
You may also look for properties that are under-priced–such as pre-foreclosures, probate sales, tax lien sales, etc. By paying close attention to future areas for development ahead of time, you can snatch properties at low costs and profit from those properties.
Cash flow may also be your goal. If so, towns and cities with universities and colleges are usually more profitable to invest in since housing is always in demand. Multi-family units may also provide better returns, depending on the location.
Owning property has major tax advantages
Homeowners can get a mortgage interest deduction on the first $750K of any qualified residence. They also get to deduct mortgage interest expense.
If you lived in a home for two years in the last five years, you can take a $250k deduction from the profits if you’re a single filer and $500k if you’re married and filing jointly. This gain is tax free.
For the rental properties you own, you can also take tax deductions for operating the property. Sometimes, you may avoid paying any taxes because of the costs charged to the property.
Investing in property makes sense while interest rates are low
Mortgage rates will not remain low forever. Buying now versus buying could make a significant difference in terms of costs. Even a 1% increase in interest rates can have a big impact on the total cost of buying a property.
As interest rates continue to be at its lowest, there will be a higher demand for mortgages and more people will buy new homes.
These days, real estate investments require little cash. You can put down a 10% down payment and let your bank finance the rest.
For investors, low-interest rates also provide an opportunity to acquire a property for profit and not as a primary residence.
Of course, you may also have to hold the property and wait for the best time to sell it. While you’re waiting for the right time, you can profit off the property in other ways.
You don’t need to be a hands-on business owner
If you plan to rent out the property, you can hire a professional property management company to help you out. It makes sense to hire a property manager if you live out of state or have several rental units.
Property managers charge from 5 to 10% of the rent. If you can afford the price, you can avoid day-to-day management tasks while receiving rent income.
The additional income from this investment can supplement your income or become your main source of income.
Real estate is a lucrative venture for the right investor
As with any investment, you need to weigh the pros and cons when you are investing in real estate.
Real estate properties are not liquid assets. Thus, if you need to sell the asset, know that it may take some time to do so.
At best, it may take months to sell them off if you need to recover your initial investment.
If you don’t have an immediate need for funds and you have enough liquid assets, real estate may be right for you.
But diversifying your investments is still a better way to minimize risk.
When it comes to financial matters, it would be best to hire a financial planner to help you with everything—from finding the most suitable investments based on your lifestyle to helping you with tax matters.
We work with several financial advisors and can make a referral if you need help with your investments. Call today to see how we can help.