Increasingly, Americans are choosing to invest in real estate instead of stocks, bonds, or mutual funds. From 2000 to 2016, real estate outperformed the stock market at a ratio of about 2-to-1. For three years in a row, Bankrate found more U.S. adults feel real estate is the best way to invest money not needed for more than 10 years. Still, only about 15 percent of Americans are currently investing in real estate.
So why aren’t even more people taking advantage? The same Bankrate survey discovered the most common obstacles to choosing real estate investing are that it’s too hard, costly and far out of their expertise. If you find yourself agreeing with those arguments, here are some reasons to reconsider:
Immediate cash flow.
There are many cases of real estate investment in which an investor purchases a property and receives a rent check at the end of the first month. Of course, this isn’t always the case, but even after a mortgage payment, repairs, or paying a property management company, generating a cash flow return is not uncommon.
While this is largely dependent upon the property, location, and the current economy, the bottom line is the U.S. population is growing and so is the need for housing. If the rules of supply and demand hold true, your investment home or property will increase in value over time.
Real estate investments can come with tax deductions on mortgage interest, operating costs, property taxes, insurance, depreciation, and even travel costs to and from your property. Not only will you be sending less money to the IRS, but you’ll automatically be increasing your cash flow.
- 1031 Exchange: when you sell a property you may need to pay a 20 percent capital gains tax on the increased property value. However, you could avoid this with the 1031 Exchange. It allows investors to defer capital gains taxes when selling a property, so long as the money is used to buy another property of equal or greater value.
If you make paying off your mortgage a priority, your equity—or the amount of your home that you actually own—will build quickly. Here are some tips to speed the process:
- Pay more toward your principal. The faster you pay down your home loan, the faster you build equity, even if your home is appreciating slowly.
- Choose shorter loan terms. When it comes to building equity, a 15-year mortgage is better than a 30-year mortgage.
- Home improvements. Increasing the value of your home helps narrow the gap between what it’s worth and how much you owe.
You don’t have to become a landlord.
Do some research and choose a reputable property management company to help you. They will take the calls about leaky pipes while you collect the rent.
Whether you are flipping houses or buying rental properties, investing in real estate can help diversify your portfolio and build your wealth. Like most investments, it may take patience and hard work, but Eagle Home Mortgage can help. With more than 150 branches licensed in 42 states, our experienced Loan Officers are ready to guide you through all of your borrowing decisions.
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