Choosing where to invest your money is not a decision to be taken lightly, but while many entrepreneurs look towards the traditional 401(k)s, IRAs, and stocks, money and opportunity are lost to those who forgo pursuing real estate investments. Savvy investors are increasingly choosing to place their bets on the real estate sector, and many are finding great success. In one Bankrate.com study, more than 27 percent of Americans polled said they believed real estate was the best investment for their money. It’s no surprise, as real estate can generate an ongoing income, appreciate over time, and might prove to be one of the most lucrative investments you can make.
Multiple Tax Write-Offs
Depending on whether you are considered a real estate professional or simply an active investor in a property, smart tax strategies could see you claiming tax deductions that will help against other sources of income you might have. Always be sure to strategize with a financial advisor or tax professional in these cases, as the details can be complicated when it comes to qualifying and filing. Whether it’s travel expenses as you journey to check on your property investments or other payments, you can find yourself saving lots of money come tax season.
Cash Flow
When it comes to real estate investments, renting is the core of your income. Having a renter means having a monthly cash flow, and expected price appreciation over the years can see this income rising as time goes on. The longer you own your rentals, the better an investment they become. Having this cash consistently flowing in means you increase your income over time without every cutting into your initial investment. Mortgage payments will remain the same, but your cash flow will rise over time as rents naturally follow rates of inflation. Real estate is a great way to preserve your capital while growing it. Because of the somewhat guaranteed cash flow that comes from rent checks, you can consider real estate as one of the safer investment vehicles.
Small Risk of Depreciation
Unless your geographical area is predisposed to major natural disasters, or there’s political unrest in your property’s vicinity, your land and property will continue to appreciate, and even the smallest of growths in your neighborhood could mean a highly significant jump in property value. Land is a limited resource, meaning supply and demand makes property investment a competitive sector, and sees your land’s value appreciate every year.
Current Interest Rates
If you’re considering an investment in real estate, the time to jump is now. Currently, interest rates are very low, meaning you can secure a great deal. These rates are only expected to rise as the years continue, and you can secure a 30 or 40 year mortgage now to save yourself thousands of dollars in the event of an interest rate increase.
A Diverse Portfolio
If you’d like to diversify your portfolio, real estate is a wonderful route to take. As real estate tends to have a low correlation with other significant asset classes, you can lower your portfolio volatility, which often results in a larger return for the risk experienced.
Protecting Your Investment
Like any other business venture, you will have to spend money to make money and protect your assets. When it comes to real estate, there are various ongoing expenses you’ll need to prepare for. If you’re not a handyman or skilled with a hammer and screwdriver, put aside money to pay for professional repair services. If you don’t plan on being a hands-on landlord, know you’ll be paying a hefty price to hire a property manager. Like any other house, problems arise, especially when you have tenants. When it comes to choosing tenants, you’ll need to be wary, as placing the wrong person in your investment can make your profits take a nosedive and cause your stress levels to skyrocket. Always use a screening service like Transunion Smartmove before allowing someone to move into your property; taking the time to properly screen your tenants is one of the most important things you can do when it comes to protecting your investment.
The Bottom Line
While there are inherent risks to a real estate investment, the rewards can’t be denied. If you’re looking to make a smart investment, real estate could be the answer.
