One of the most common discussions around investing in real estate is whether or not it’s a good idea. For many individuals, the answer is “yes,” followed by something along the lines of “when you’re paying rent you’re paying a mortgage - it just isn’t your own. Why pay someone else’s mortgage?”
This argument, however, works both ways.
If you’re considering investing in real estate, you’re most likely attracted to the idea that someone else (your tenants) will be paying your mortgage and, if you’ve made the proper buying decisions, you’ll be making a profit on it as well.
Making Mortgage Payments Is Forced Savings
One of the key factors that makes real estate investment a safe bet is that you’re able to build equity on an investment that is also tangible. You walk away from the closing table with the keys to a property, and you can move right in (or have your tenants move in), but as each month goes by, you’re also making payments toward your mortgage and gaining equity in the property, which essentially acts as a forced savings plan. As you make improvements on the property, you’ll also be gaining equity. You aren’t just letting your money sit in an account - you’re able to actively use what you’ve invested in (either to live there or to begin turning a profit) while you also continue to grow your equitable savings.
Real Estate Holds Its Value
Real estate is one of the only commodities that holds value well and generally increases in value, or has the potential for an increase with the appropriate care. Unlike a car, which begins decreasing in value the moment you drive it off the lot, real estate tends to appreciate or - barring any huge market upheavals - hold its existing value. As such, the potential to bolster your portfolio and change your financial outlook for the better - forever - is staggering when it comes to investing in real estate. This is true whether you’re purchasing a primary residence or an investment property - and with an investment property the potential for a high yield is increased due to the fact that while your mortgage payment and interest charges will remain the same, you can increase rent as time progresses based on market values.
As Your Portfolio Grows, So Does Your Opportunity
As with many things, the more you invest in real estate and the more income it generates, the more you will be able to continue to do so. However, investing in real estate is unique in that you can use your current holdings/investments as leverage to take out loans on your next investment.
Ahh, the advantage that everyone’s been waiting for - tax benefits. Due to the structure of the US tax code; rental income may end up being virtually tax free, or taxed at a lesser value than the total actual income. This is because things such as expenses and mortgage interest are deductible and in many cases, these deductions end up washing out the taxable income. That said, you should absolutely speak with a tax professional regarding your current tax status and the potential for achieving any tax benefits through your investment.
To discuss these benefits, and others associated with investing in real estate, tell us about your goals or next project!