How well have you invested in your retirement? Buying your first property takes gumption, and it calls for a lot of sacrifices. You will be forced to resist splurging on vacations for you to save for a down payment.
The whole process can be daunting and probably the most expensive and emotionally charged purchase you will make. You could be confused about whether the struggle is worth it or not. The short answer is yes; it is worth it. We still have a better solution for you.
Tax benefits
Property owners and landlords enjoy some tax breaks since tax codes allow various deductions for the standard costs incurred in owning real estate, such as property upkeep, maintenance, improvements, and even the interest paid on the mortgage. The benefits accrued from the tax deductions can be used to offset income and reduce your overall taxes.
Additionally, if you decide to sell your investment property after a year, the gain realized is subject to capital gains tax rates. Depending on your tax bracket, it is generally 15% or 20%, usually less than a personal tax bracket.
Appreciation
Appreciation is the increase in the value of a property. Since the year 1968, real estate has been appreciating at 6% per annum. The small changes you on your real estate investment increase its value significantly. Making small physical home additions such as smart landscaping, backyard lattices, or front yard fences will contribute to your property's value.
Any small renovations or makeover on a real estate property counts when it comes to value addition. Part of appreciation is also a result of inflation or the general rise in the cost of goods and services and pay overtime, but demand is the main factor. We can't build any more land, so as empty land gets used up, the occupied land becomes more desirable. When the quantity of land or housing is low, but there is a strong demand, it goes up.
Cash flow
Cash flow is the net income you earn from an investment after deducting all the operating expenses and making monthly mortgage payments. The cash generated by a real estate investment will always be a higher percentage of cash on cash return than any other investment you will make.
This is because you can leverage and minimize expenses to increase your return on investment. For instance, you can install solar from the NM Solar Group to lower your monthly utility bills. The cost of solar installation is low, and you will enjoy New Mexico solar incentives for example, wherever you are located.
In addition to reducing your monthly utility bills, you get a 30% federal tax credit, and there is no tax charged for solar energy. You also own the solar system, which will increase the appraisal value of your home as well. An excellent real estate investment can give you 6% or more cash flow.
Leverage
The most significant advantage of investing in real estate is that you can leverage using either financial instruments or borrowed capital to increase return on investment (ROI). Leverage gives you the ability to own property even when you only have the cash to pay for a small percentage.
Leveraging enables you to reduce your out of pocket expenses and get control over more massive amounts of property. When you take a mortgage to reduce the amount of investor cash needed to buy a property, this is possible.
Once you have built up enough equity on your investment property, you will be able to leverage the investment to get cash by securing a second loan against the accumulated equity, or getting a refinance for the original mortgage plus the additional equity. This gives you more money to buy another property.
Look to Invest Today
Real estate investment is understandable and accessible for almost everyone. It is easy to make buying decisions, easy to finance, and there are no insurmountable financial barriers to block anyone from joining the industry. Once you become a real estate investor, whether to rent out the property or live in it, it will be easy for you to improve your property. The tax benefits are also straight forward and easy to use. While other industries are becoming more of a mystery and becoming the game of financiers, real estate investing is getting bigger and better for average investors. Don't be left behind!