Have you been wondering about investing in real estate? Owning an investment property can be a great choice, and we’ve outlined six of the biggest benefits here. Keep in mind, whether you invest in real estate, stocks, bonds, CDs or anything else, it’s important to talk through the potential risks and returns with an experienced professional before committing.
Top reasons to invest in real estate:
1. Cash flow
Depending on the property you pick and your rental market, the money you make from rent may exceed what you’re paying in expenses (mortgage, insurance, repairs and taxes), leaving you with a nice flow of cash every month. Having an extra source of income is a key appeal of investment real estate.
2. Tax advantages
Many rental property expenses are tax deductible including mortgage insurance, property taxes, maintenance and repair expenses, management fees, advertising, insurance, professional services and travel expenses. Depreciation on the rental building (not the land) is also a deductible expense.
See the IRS website for a complete list of deductible expenses and talk to your qualified tax advisor.**
3. Protection from inflation
An investment that hedges against inflation is one that protects the value of your money when the cost of goods and services increases. Real estate investments are often used to hedge against inflation because when prices go up, rent and property values go up, making your investment even more lucrative. Instead of your money buying less, it earns you more.
Real estate is one of the few investments where you don’t need to pay the whole price in order to get a return on the investment. When you purchase stocks, you pay 100% of the stock price and receive a financial return from selling at a higher price. With a property such as a house or condominium, a 25% down payment can purchase the entire property, and you also reap the financial rewards from selling the property at a higher price. That’s leverage.
5. Someone else is paying down your loan
Assuming your rental property is one where the rent equals or exceeds your mortgage, your tenant is paying down your loan in the form of rent, rather than money coming from your own pocket. Now, that’s a nice arrangement!
Many people view real estate as a long-term investment. Over time, property values increase. While recessions can and do happen, if you’re in it for the long haul, you may be able to realize some great financial returns from selling investment properties after 20-30 years. The chart below from the Federal Reserve Bank of St. Louis shows how the median sales price for homes have continued to increase going back to 1963.
Elevations can help you do the math
If you’re considering an investment property, an Elevations Mortgage Loan Officer can help you crunch the numbers to see if a real estate investment makes sense for your market and budget. Elevations offers single family home loans, warrantable condo loans and small multi-family (1-4 unit) home loans with 25% down. Plus, our competitive rates and low origination fees help you make the most of your investment. Contact us any time — we’re happy to help!
** Elevations Credit Union does not provide tax advice regarding any product or service, please consult your trusted tax advisor for tax related information. Any and all information regarding investment properties are for informational purposes and not an advisement of any investment related recommendations.