It’s said that real estate is a great way to invest and make wealth over time, but what isn’t said is that to do it effectively, there are some things you need to know first.
Investing in real estate can be lucrative with the right strategy in place. There are tax benefits, cash flow opportunities, inflation protection, and leveraging your purchasing power, which is a return on your initial investment.
Let’s discuss these benefits that investing in real estate may offer in greater detail.
Tax Benefits
Suppose you’re interested in real estate as an investment opportunity. In that case, you need to decide if your strategy is to have a home to hold and thus create monthly rent opportunities or if you’re looking to purchase and sell, known as a flipped home.
For flipped homes, you’ll need to invest some additional capital into upgrading and remodeling the house to be able to charge top dollar.
The key is to find a home that is a little worn and a seller willing to sell quickly, ideally below market price. Find a reputable, experienced Realtor who can help you navigate the ins and outs, as well as legal liability, before purchasing a house.
There can be a lot of overhead in flipping homes, so it’s essential to have a strategy in place that will allow you to minimize construction costs and maximize your return on the investment.
You can choose to do the work yourself, which is not the most recommended strategy, so consider hiring a contractor that works in that specific area to help you.
For example, you may need to tear the structure down to the skeleton, rebuild it all, or simply modify the existing home, such as installing some newer upgrades like flooring or avoiding older insulation removal issues.
A professional contractor can save you a ton of money and keep all your upgrades up to code so that you won’t have any additional issues come time to sell.
With rental properties, you purchase the house to hold and charge rent when you plan to own the home. This investment opportunity can bring a potential return on your investment for the length of your ownership.
Every month that you have a renter to pay down your mortgage costs, you’re building long-term equity that you can access either by monthly income or selling the property as it appreciates.
Cash Flow Opportunites
Cash flow is defined as the revenue left over after all your bills, mortgages, taxes, and fees are paid. Every month you have a rental property, you’re decreasing your debt on the property and increasing the value you have in the home, whether by holding it and continuing to rent it out or selling it for a profit.
Cash flow is seen as the most significant benefit with real estate investing and will offer the opportunity to earn back your initial investment and make a profit along the way.
Inflation Protection
As the price for goods and services increases, this process is known as inflation. Inflation can have several negative effects on the overall quality of life due to the rising costs, but with home ownership – especially as an investment opportunity – can be a hedge against inflation.
The reason is simple, as prices increase, so does the price for rent making your home investment an inflation beater.
Leverage Your Purchasing Power
The beauty of purchasing a home is that there are several programs to assist in the purchase process.
There are programs that allow for little to no downpayment requirements and a purchaser has the added benefit of only having to put a little money down to secure the mortgage and debt. In effect you are leveraging a loan to make a purchase that will make you money over time.
What that means is that you can put down $30,000 on a home valued at $600,000. When you calculate a conservative 3% appreciate per year over the length of the mortgage, you are taking a loan out to create wealth for yourself over time.
The benefit of home ownership is stability for you, whether as a place to call home or as an opportunity to build equity and wealth over your life time. From tax benefits that can lower your obligations to creating income opportunities with little risk up front, you can turn a small investment into massive long-term gains.