Are you looking to invest your money and want a secure investment that will grant you continuous income? Consider whether you should invest in real estate. We can help you understand the different types of real estate investments and the benefits you'll gain from them.
Investing in real estate involves purchasing, managing, improving, and selling various types of property to generate income. The amount you can make on a real estate investment varies, but the following factors play a role:
You can choose to invest in several different types of real estate, all with different advantages and disadvantages.
A REIT refers to a company that owns and operates investment properties. Many real estate investors love buying shares of stock in these companies because it allows them to generate passive income without directly investing in a property.
In general, REITs offer a safe investment that provides passive income but doesn't provide any appreciation or ability to improve a specific property for increased equity.
Residential properties include single-family homes, rental units, and apartment complexes. The safest form of residential investing involves collecting rent payments from tenants. As you pay off your mortgage and maintain the property, you'll pay fewer expenses and increase your profit, even if you don't increase your rent.
Another common way of investing in residential real estate involves flipping. This requires you to purchase the property for a low price, often while it's under foreclosure, and then make improvements to increase the property value. You then sell the house for a profit.
Investing in a rental property offers a relatively safe investment and a steady passive income, provided you screen and vet your renters to avoid problems. Flipping a home requires greater risk, but a single sale could net you the same amount as other people's yearly salaries. Rental properties are always in demand while improving a property works best in a seller's market.
Investing in commercial real estate means you buy a property that businesses rent from you. For example, a strip mall or office complex both qualify as commercial investments, and it means multiple businesses can use the space, increasing the investment's security.
Different types of commercial investments include:
You can often buy land for an affordable price and either rent it out, sell it for a profit, or develop it with commercial or residential real estate. It brings its own set of risks and rewards and works best for people with a large amount of capital to improve the location.
Why should you invest in real estate? This unique investment gives you several different benefits.
One of the most appealing aspects of real estate investments stems from their ability to quickly generate a predictable cash flow. For example, if you purchase a property and your mortgage and operating expenses equal $1,000 a month, you can find a tenant to pay $1500 a month in rent. Since you won't experience any shortage of renters, you could start generating a $500 profit almost immediately.
Because you lock in renters at a monthly rate for at least a year, you can easily predict how much profit you'll generate and won't worry about a fluctuating market.
Real estate usually offers a good return on your investment. You can hold the property and collect rent, using it to pay off your mortgage more quickly and improve the value of the property. Once the market becomes favorable, you can sell the property for a considerable payday.
The Internal Revenue Service offers several tax breaks and deductions for real estate investors. If you have a large amount of cash or savings that you would otherwise pay significant taxes on, you can invest the money in real estate instead.
Even if the value of the property depreciates over time (which can take 30 to 40 years, depending on the property), you'll still have decades' worth of tax deductions to offset the change in value. An investment property may also help you avoid capital gains taxes if you use a 1031 exchange.
One of the first rules of smart financial investing involves diversifying your portfolio. Investing your money into different forms of assets helps protect your overall performance against volatile swings in the market or individual business sectors. In other words, it prevents you from putting all your eggs in one basket.
Real estate remains one of the most secure and long-term investments you can make, and even if your portfolio loses money in other areas, having a substantial amount in real estate can still grant an overall increase in value.
Because rent tends to increase with inflation, properties provide a relative hedge against the negative effects of a growing economy. The property absorbs some of the inflation by charging more for rent and some by increasing the capital value of your property.
While the process differs slightly based on whether you'll rent or flip the home, we follow the same general steps.
From helping you understand your investment goals to increasing the value of your property, we provide excellent service at each step.