There are a lot of “gurus” out there who promise to teach you how
to “get rich quick” through real estate investing. While much of
what they’re selling are high-risk schemes, there is a way to make
predictable, low-risk income through real estate investing. In today’s blog,
we’ll examine the tried-and-true tactics that can be used to
increase your income, pay off debt … perhaps even fund your retirement!
WHY INVEST IN REAL ESTATE?
One of the basic principles of real estate investment lies in this fact:
everyone needs a place to live. But there are other reasons why real
estate is a great investment choice:
Appreciation is the increase in your property’s value over time.
History has proven that over an extended period of time, the value
of real estate continues to rise. That doesn’t mean recessions won’t
occur. The real estate market is cyclical, and market ups and downs
are natural. However, in the vast majority of markets, the value of real
estate does grow over the long term.
2. Hedge Against Inflation
Inflation is the rate at which the general cost of goods and services
rises. As inflation rises, prices go up. So the money you have in your
bank account is essentially worth less, because your purchasing power
has decreased. Luckily, real estate prices also rise when inflation
increases. That means any money you have invested in real estate will
rise with (or often exceed) the rate of inflation.
3. Cash Flow
One of the big benefits of investing in real estate over the stock
market is its ability to provide a monthly cash flow. If you choose
to rent out your investment property to a tenant, you can expect to
receive a rent payment each month. If you’ve invested wisely, the
rent should cover your debt (i.e. mortgage payment), as well as any
repairs and maintenance that are needed. Ideally, you will have some
additional cash left over each month to supplement your income.
Leverage is the use of borrowed capital to increase the potential
return of an investment. That means you can put a small amount
down, take out a mortgage to finance the remainder of your
investment, and profit on the entire combined value. That’s the power
5. Tax Advantages
One of the top reasons to invest in real estate is the tax benefit. There
are many ways a real estate investment can save you money each
year on taxes. Be sure to consult a tax professional, but if structured
correctly, the profits you earn on your real estate investments can be
largely shielded from tax liability. Just another reason to choose real
estate as your preferred investment vehicle.
TYPES OF REAL ESTATE INVESTMENTS
While there are numerous ways to invest in real estate, here are the
top three methods I’ve helped my clients use to start making
money as investors:
1. Remodel and Resell
Commonly referred to as a “Fix and Flip,” investors purchase a
property with the intention of remodeling it in a short period of
time, with the hope of selling it quickly for a profit. Investors need
to understand the risks involved and be prepared financially to cover additional expenses that may arise.
2. Traditional Rental
One of the more conservative choices for investing in real estate
is to purchase a rental property. The appeal of a rental property
is that you can generate cash flow to cover the expenses while
taking advantage of the property’s long-term appreciation in
value, and the tax benefits of investing in real estate. It’s a win-win,
and a great way for first-time investors to get started.
3. Short-term Rental
Platforms that facilitate short-term rentals, like Airbnb, VRBO and
HomeAway, are booming.
Their popularity has spurred a growing trend toward dual-purpose vacation homes, which owners use themselves part of the year, and rent out the remainder of the time. There are also a growing number of investors purchasing single-family homes for the sole purpose of leasing them on these sites.
However you choose to invest in real estate, make sure you’re
working with a real estate agent who has knowledge of the
investment market and can guide you through the process.
While no investment is without risk, a conservative and well-planned
investment in real estate can supplement your income
and set you up for future financial security.
If you are considering an investment in real estate in the New Year,
please get in touch with me and let’s chat. Not only am I am active real estate investor myself, I have experience working with all types of investors and can certainly help you determine the best strategy to meet your investment goals.