Why People Invest in Real Estate – Should You?

Many people know that real estate investments can be very lucrative. For that reason alone, people will want their piece of the pie. They know this is a great way to build wealth, not only for themselves, but they can pass it on to their future generations.

In addition to monthly rental income, there are other factors that contribute to why people invest in real estate. Some of them include:

o With the increase in value of rental properties, the value is increased. This, in turn, could help with sales and reinvestment in properties that are already higher quality. Appreciation of rental properties can also give way to a line of equity for future use.

o Speaking of equity, you as an investor can invest in sweat capital, which means improving your property. It doesn’t have to be that far out where you end up spending a lot of money.

This can help your property appreciate in value faster than it would if you hadn’t made any improvements. So if you spend $3,000 on cosmetics and miscellaneous items, the property’s value can 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. Even if rent payments increase during this time, your mortgage loan payments should stay the same. Because of this, you can get an increase in cash flow.

Another thing about inflation is that you can also attract more tenants (if you have vacancies) since some people may not be able to get mortgages during this time. As you will have greater 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 you a loan for your real estate investment(s). The better your credit rating, the greater your chances of getting a good, low-interest fixed-rate loan.

You can also look at zero down loans, but that can be riskier. You would have to pay more into your mortgage payments because you didn’t include a down payment. So if the property appreciates in value, it benefits you along with the monthly cash flow.

o Real estate investing is considered a business. You can use the resulting expenses and deduct them from your taxes. Everything you bought, repaired, all fees and everything else related to the investment in question.

Even if you have properties that are outside of the regional area you need to travel to, these expenses can also be deducted from your taxes. Last but not least, being able to deduct expenses from your taxes is like a marriage made in heaven.

o Have you ever heard of receiving cash that is tax-free? Let’s say you have an increase in rents and you end up with positive cash flow. The excess can be used for other things. When the time is right, you may consider refinancing the rental properties.

If you do, you could secure a higher mortgage that’s about $20-$50,000 more than the original. You would pay off the initial mortgage and have a nice surplus afterwards. The excess would be considered tax-free money.

o The 1031 Exchange is named after Section 1031 of the Internal Revenue Code. It discusses how real estate investors can withhold capital gains taxes when selling one of their properties. There are three conditions that must be met before the 1031 exchange can take effect:

1. It is a real estate investment and not a main residence of the investor.

2. The property can be exchanged for a property of the same or similar type.

3. Certain deadlines must exist and be observed for the exchange.

If an investor uses profits from another real estate sale and invests in another property, they can withhold capital gains for future real estate transactions. Most likely, the investor will work to get additional equity and more income and profits from additional property rentals.