Around 34% of the total U.S. population lives in some form of rental housing. With an average monthly rent surpassing $2,000, you have ample opportunity to set up a passive income stream that builds wealth for you, your family, and all your future dreams.
Whatever the reason you want to purchase a new property, setting up a tour and digging into the financials are vital to boosting your asset portfolio. Having commercial real estate, rental income, or land to hold for tax purposes sets you up for success. In addition, it provides you with another vehicle for cash flow management that ensures more stability regardless of market volatility.
Finding quality investment properties is crucial. Hidden real estate gems can be used to generate income – giving you a lifeline without all the daily hassle of owning a business or running an online store. Let’s explore how investment properties can help improve your financial well-being.
Benefits of Real Estate Investment Properties
Real estate is a tangible asset that can be used as a home, rented out, sold, or used as collateral for loans. It's also an excellent way to create passive income.
If you're looking for ways to diversify your portfolio and add some much-needed stability to it while still maintaining the potential for growth and profit, real estate is definitely worth considering. You'll experience a wealth of benefits, including:
Improved Cash flow
It is a powerful asset if an investment property generates positive cash flow over time above operating expenses and the cost of paying the mortgage. It creates income to sink into other investments, pay down debt, finance personal dreams, or build new businesses. Plus, you gain an equity asset to leverage in the future.
Appreciation
When you invest in real estate, it's essential to understand how to measure appreciation. Appreciation is the increase in the value of your property over time. It is calculated by comparing the cost of a property at one point in time with its current market value.
Appreciation can be expected when buying an investment property with the potential for growth and improvement over time. The amount of appreciation will depend on several factors, but in general, it is much safer than other assets on the market.
Tax benefits
The cost of purchasing an investment property and improving its buildings can be depreciated over the whole useful life. That gives you decades of deductions from your taxes to improve pre-tax wealth and lower your overall obligations.
Hedge against inflation
Inflation is a threat to your savings, but it can be an opportunity for you as well. When inflation increases the value of your savings, that's good news. Real estate is one-way investors hedge against inflation by locking in today's price now so that tomorrow won't see another round of hikes.
Unlike other assets such as stocks or bonds, which can sometimes drop in value when markets become volatile, real estate tends not only hold steady but increase over time, thanks mainly due to its strong ties with local economies.
Portfolio Diversification
Diversification is one of the most important aspects of any investment portfolio. Real estate makes an excellent addition to your asset mix because it can be used as collateral for a loan. If you have an investment property that's paid off and generating positive cash flow, the bank will likely be willing to lend against it. Your real estate investment will help keep things going steady.
Create a Legacy
A quality investment property can be left to your friends and family as gifts or in trusts. You can use the property for non-profits, education, or simply to ensure your kids have a place to call their own when they start a family.
Factors to Consider with Real Estate Investment Properties
Of course, the best option for finding a quality investment property is to work with an experienced real estate agent familiar with the local community you are interested in viewing. They will have the insight needed so you can maximize your future financial sustainability.
Remember, real estate is a tangible asset. That means you need to “kick the tires” a bit to ensure you are getting the most future value for your money. Location is a crucial factor because you want strong demand for rental income, appreciation potential, or resale value.
You should also consider what type of property you are interested in investing in. Some prefer multi-family properties for regular rental income. Other buyers like commercial rent, vacation rentals, or land to hold as a future building site. Market conditions are volatile, so be sure to describe what property type attracts you the most with your agent first. The more precise you are upfront, the better the shortlist of potential properties.
Finally, look closely at the financials. You want to consider operating expenses if you are going to leverage a property management company, as well as what lenders will work with your suggested framework to purchase, repair, fund, and maximize your investment.
Conclusion
The fact that 42% of home buyers think real estate is a better investment property than sinking cash into stocks shouldn’t surprise anyone. No matter the whims of the ever-changing consumer marketplace, we all need a place to call home at the end of the day.
Investing in real estate can be a great way to diversify your portfolio, but it's important to make sure that you do it right. The first step is always research. You should consider all of the factors mentioned above before deciding whether or not investment properties are suitable for you.
Need a little help? No problem! Contact my office today, and let’s find the perfect investment property vehicle for your financial future. Together, we can uncover those hidden gems that match your goals.