These are precarious times for investments, as the world and many of its inhabitants seem to be at war with each other. This always makes the idea of investing in anything all the more daunting. But as we know, putting cash under your mattress isn’t going to accomplish anything. If you’re avoiding the stock market for now or simply have an interest or passion for the field, read on for reasons you should consider investing in real estate.
It Will Provide You With Income
While stocks and bonds typically yielding about two percent, real estate is actually able to supply with either a main or supplementary income depending on the property or properties. As Forbes contributor Erik Karter notes, “It’s possible to generate high single to low double digit returns on your cash even with a mortgage.” This is particularly impressive, especially if it’s a side “gig” for you!
It Offers Inflation Protection
On top of the income real estate investments can provide, this income is in sync with inflation. To boot, inflation can actually work in your favor in this instance, as it can increase the value of real estate and lessen your mortgage debt over time. Inflation typically negatively affects stocks and bonds, but this isn’t the case with real estate.
It Forces You to Save for Retirement
It’s never to early to start saving for retirement. If you’re faithful about putting your monthly deposit into your 401k or an IRA or the like, good for you, but many of us aren’t dedicated investors in this way. A rental property, on the other hand, will require you to keep your financial commitment. As long as you don’t give up on it, you’ll be rewarded with a steady cash flow for years to come.
You Don’t Have to Have Initial Capital to Invest
Unlike traditional investments, you don’t have to have your own money to invest. Hard money loans are a fantastic and flexible option if you need money now. It’s a quick and efficient way to get started in this promising field. Ideally you’ll be able to fund yourself in future investments due to the income you yield but this is a great way to get started.
There are other sources of loans like Home equity conversion loans, also known as reverse loans, have a lot of pros and cons. One advantage is that defaulting on one is nearly impossible because the reverse mortgage terms will allow you to retain ownership of your home unless you decide to move out of it yourself, are forced to do so for medical reasons, or die. However a distinct reverse mortgage disadvantage is the fact that, if you do have to move or you pass away, your family cannot continue to live in or own the home unless they pay the loan balance right away. Another issue which you must consider is that you cannot refinance a reverse loan once the agreement is signed or obtain any additional home loans.
As we mentioned, you don’t have to have the initial capital to invest, but once you have recouped some, you can use it as leverage. In turn, using your bank’s money is quite simple. You can make a down payment, leverage the capital you do have now, and ultimately increase your return on investment.
Tax Advantages Abound
Many people get into real estate investing due to the tax advantages. Not only can you deduct things like mortgage interest, property depreciation, and property taxes, but you can also defer the capital gains tax if you sell a property and invest that money in another property. This advantage is passed down to other generations, too, as your heirs can inherit the property and sell it without having to pay any tax on what’s been appreciated during your lifetime. Take that, Uncle Sam.
Not only are there impressive tax deductions that can be made, but the income you make off your investments will also likely be tax-free! As Entrepreneur VIP Contributor Mark J. Kohler notes, “It’s no secret that because of depreciation and mortgage interest deductions (if you leverage your capital), your cash flow should be tax-free.” Let that sink for a minute or two!
This advantage is passed down to other generations, too, as your heirs can inherit the property by simply preparing the required documents for transferring such as a skillfully-made quitclaim deed. After that they can do whatever they want. They can actually and sell it without having to pay any tax on what’s been appreciated during your lifetime. Take that, Uncle Sam.
“In the future, you may even consider a 1031 exchange, charitable trust, or an installment sale to lesson your tax liability further,” Kohler goes on to point out.
Not sold yet? We get it—investing isn’t a decision to make lightly. Find a financial expert and sit down with him or her to discuss your options. We have a sneaking suspicion, however, we’ll be seeing you in the real estate market.