Even now, with the slump in real estate values, investing in real estate is not entirely unthinkable. If anything, real estate is among the most effective ways to save, if not outright grow, money.
Successful business owners are known to invest their profits in rental property. After all, properties are tangible and less volatile than stocks and other investment vehicles. Renting out property is also a favorable way to invest because houses and real estate are easy to comprehend.
Here are more reasons why a real estate investment makes sense to try:
You can essentially invest in real estate without money. How? By â€˜gearing' or leveraging, the practice of borrowing to invest in property with the expectation that the returns would trump the interest. On the whole, real estate investors find it easy to gain leverage from bank loans. They can then purchase property and raise its equityâ€”without spending a penny. Besides, the mortgage interests resulting from such loans lead to another benefit: tax deduction.
2. Tax deductibles galore
Aside from mortgage interest, depreciation and insurance qualify as tax deductions on your rental property. Other deductions include any costs involved in operating the property, such as payments to people who manage the property. The expense of repair and maintenance is also deductible, and so are utilities and marketing costs. You may not know it but the travel expenses you incur from checking on the property also merits for a deduction.
3. Tax-free, positive cash flow
Such deductions ultimately raise your cash flow's freedom from taxes. They offset the rental income and thereby render it larger than the expenses. All those savings gotten from tax breaks ultimately turn a profit from a loss.
4. Growing equity
More often than not, a real estate investor never has to pay tax on the cash flow and simply wait for capital growth on the future sale of the property. The equity growth means you are able to turn some respectable profit while saving on mortgage.
5. An instant retirement plan
Face it: Many of us don't save enough or efficiently for our retirements. We default on our month-by-month IRAs, 401ks, and SEPS. You can virtually wed yourself to a retirement plan by investing in a rental property. With it, you have no choice but to commit to it; if you sell it too soon, you would be at a financial disadvantage. In the long term, you would be thankful for this commitment.
Some areas have higher inflation rates than others. When you invest in a property in such an area, your rent increases fast but your mortgage stays as it is. In other words, the increasing cash flow gives you savings on maintenance expenses.
Should you want to invest in real estate, make sure you can afford it. Expect to own the property for the long haul. You should also be doing some introspection concerning your threshold for risk.
One advice you should take is to skirt investing in properties through fund managers and wealth creation groups. Real estate agents and developers are still the best way.
All in all, property investment is a good way to build wealth, especially if your expectations are realistic and you are well informed about it. Just do your research, heed the advice of pros, and you're good to go.
Article by Joel Mayer who writes about property and reviews companies like Taylors Randwick Property