Why do people invest in real estate? should you?
Many people know that investing in real estate can be very lucrative. For that reason alone, it will make people want to get their piece of the pie. They know that this is a great way to build wealth, not only for themselves, but they can also pass it on to their future generations.
In addition to having monthly rental income, there are other factors that contribute to why people invest in real estate. Some of them include:
o With the appreciation of rental properties, there will be a higher value. In turn, this could help with the sale and reinvestment of properties that already have a higher value. Appreciation of rental properties can also give way to a home equity line of credit for future use.
o Speaking of equity, you as an investor can invest in sweat equity, which involves making improvements to your real estate. It doesn’t have to be that far away where you end up spending a lot of money.
This can help your property value increase faster than it would have if you hadn’t made improvements. So if you spend $3,000 on cosmetics and miscellaneous items, then the value of the property could be double or more than the amount you spent on improvements.
o Being a real estate investor in times of inflation is not necessarily a bad thing. Although rent payments increase during this time, your mortgage loan payments should remain the same. Because of this, you can have an increase in cash flow.
Another thing about inflation is that you can also get more tenants (if you have vacancies) because some people may not be able to get mortgages during that time. As you will have a higher demand for tenants, the rent will also increase. This is part of the supply and demand agenda.
o Using “Other People’s Money”, or “OPM”, is a good reason for people to invest in real estate. You can find a bank that will secure a loan for your real estate investment(s). The better your credit, the more likely you are to get a good fixed-rate loan with low interest rates.
You can also look into loans with no down payment, but that can be riskier. You would have to pay more in your mortgage payments because you did not include a down payment. So when the property appreciates, it will benefit you along with the monthly cash flow.
o Real estate investment is considered a business. You can use the expenses of it and deduct them from your taxes. Everything you bought, repaired, any fees and anything else related to the investment in question.
Even if you have properties that are outside the regional area where you have to travel, those expenses can also be deducted from your taxes. If nothing else, being able to deduct the expenses on your taxes is like a marriage made in heaven.
o Have you heard of getting tax-free cash? Let’s say you have an increase in rents and you end up having positive cash flow. The surplus can be used for other things. If the time is right, you may think about wanting to refinance rental properties.
If you do, you could get a higher mortgage of $20 to $50,000 more than the original. You would pay off the initial mortgage and have a nice surplus afterwards. The surplus would be considered tax-free money.
o The 1031 Exchange is named after Section 1031 of the Internal Revenue Code. Discusses how real estate investors can avoid capital gains taxes when selling one of their properties. There are three conditions that must be met before the 1031 Exchange goes into effect:
1. It is a real estate investment and not a primary residence for the investor.
2. The property can be exchanged for another of the same or similar kind.
3. Regarding the replacement, there must be certain deadlines established and respected.
When an investor uses the proceeds from the sale of another property and invests them in another property, they can retain the capital gains for future real estate transactions. The investor will most likely be working towards additional capital and more income and profits from rentals of additional properties.