Real Estate Investing explained
The purchase of property, ownership of property, and management and sale of an estate for profit is all part and parcel of investing in Real Estate. Real Estate investing involves a buy and hold investment strategy, which in itself, is very simple. You purchase the property and hold ownership over it for a period of time until it appreciates in value thereafter enabling you to sell it for profit. Investing in properties can be very exciting and extremely rewarding but can also be very scary for a first-time investor. It is a tough business and can hold many challenges, but if you make the right decisions and choices it could change your life for the better.
The benefits of Real Estate Investing
It is a known fact that over 90% of the world’s millionaires have been made from Real Estate investing. Here are the reasons why Real Estate Investing can be a very lucrative career move.
A Passive Income
One of the most beneficial advantages of investing in real estate is the ability to earn a passive income. This is obviously once all of the monthly bills related to your investment have been paid. Investors then use this income to purchase more properties and add to the value of their total investments and in return increase their monthly passive income. The good thing about this cash flow is that it is relatively stable and is able to increase with appreciation. According to statistics real estate generates a 2.4% annual return and investors can enjoy a ride range of investment options such as real estate partnerships, crowdfunded real estate and public or private non-traded REIT’s. Investors who are looking for a more guaranteed level of passive income should consider hiring a property manager so as to help them maintain their day to day functions while owning various properties.
Within the United States there are many tax benefits available when it comes to real estate investing and various allowable deductions available for your personal home as well as rental and investment properties.
Mortgage interest and property taxes listed under Schedule A are able to be written off and rental property owners are also able to report their rental activity under Schedule E. This will allow the interest that has been generated by the rental property to be offset by any allowable expenses which would reduce the net profit of the rental activity. Fortunately, the IRS allows for property owners to take losses on their rental companies and an amount of up to $25 000 passive losses can be used to offset the income of the property owner. An added tax benefit is that the money received from rentals in not included in self-employment tax and most real estate investments can take advantage of long-term capital gains rates which are lower tax rates than ordinary income tax rates. Tax can also be deferred through a 1031 Exchange which will enable the real estate owner to sell a property and buy another one while at the same time deferring capital gains tax.
The rental stream that is made by the renting of properties is usually able to maintain the loan repayments that are needed to cover your real estate purchase therefore making the operating of the rental property a lot easier. Once the mortgage has been paid off you are left with a valuable asset that will continue to gain appreciation as the years go by. You can choose to carry on renting the property out or sell it at a much higher price than what you had originally purchased it for.
Real Estate Can Protect Against Inflation
Real estate investing can help to protect against inflation which often occurs when prices increase due to a decrease in the currency value. Each year the value of the dollar is reduced by 2% and real estate can be an exceptional asset to assist in helping to provide a buffer against inflation. This essentially means that real estate can hold its value better than the value of the US dollar. Property is something that is always going to be needed due the fact that people are always going to need a place to live thus making real estate investment an intrinsically valuable asset to have. Income from real estate investments comes from rentals prices which also increase with inflation as the cost of living goes up.
Real Estate Appreciation
Real estate appreciates with every year that passes and even though the market has its ups and downs when it come to housing values, the general trend is still an upward rise in the long term.
Another benefit of real estate investing is the fact that it continues to appreciate over a long period of time and the longer you leave it the more it is normally worth when you sell it. While the market can have various ups and downs, housing values generally rise as time passes and real estate property, in general, appreciates and continuously goes up in value making real estate a safe store of wealth. There is a continuous demand for real estate and sometimes supply can be limited as the demand increases. This can lead to a rise in rental prices especially in popular areas.
How to get started
- Identify where you are at financially.
- Choose your Strategy.
- Pick your target market.
- Decide on the criteria of your Property Investments
- Line up financing
- Create a plan to find good deals
Home Buyer Checklist when Investing in Real Estate
- Do a finance Check
- Set a budget for yourself
- Get a pre-approved Mortgage
- Find a trusted Real Estate Agency
- Shop for a property
- Gather documentation
- Make and offer
- Arrange Finance
- Get Appraisals and home inspections done
- Close in on your new property
What to consider
It is important to remind yourself that when you invest in a rental property you essentially become a landlord meaning that you will be responsible for things such as paying the mortgage, property taxes, insurance, maintenance, finding the right tenants and dealing with any rental problems. A landlord is not the easiest of jobs so you need to be sure that you will be comfortable fitting into that position. You can, however, hire a property manager to handle all the details for you especially since being a landlord is a very hands on job which wont leave you much time for anything else especially if you have problem tenants. Landlords make money by collecting rent so the rental amount that you are charging needs to be competitive enough to attract tenants but not low enough to make you lose out on money that could go towards the purchase of new properties. Always try to charge enough rent to cover the mortgage and expenses until the property is paid off but be careful not to charge too much or you will land up with nobody interested in renting your property. Property appreciation is one of the biggest ways in which to make money and when the time comes for you to sell you will more than likely to sell it at a profit.
What is an investment real estate agent?
An Investment Real Estate Agent understands the needs of a Real Estate Investor as well as what their short and long term investment goals are. They can identify with the timeline of the Real Estate Investor, do the math, look at the current market, be an insider and always endeavour to be the go-to-person for Real Estate Investors.
What to look for in an Investment Real Estate Agent
- Negotiation Skills
- Good Communication
- Expertise in the Community
- Good Investment Knowledge
- Well- Connected
How an Investment Real Estate Agent can help you
When you start the search for a property you should make use of a professional Real Estate Agent to help you narrow down a few of the characteristics that you are looking for in a property such as location, type and size. An investment Real Estate Agent is a licenced professional whose speciality is to assist investors to source properties to add to their portfolio. These professional agents know their way around investment financing as well as various other types of investments and can be an excellent connection for a property investor. Real Estate Agents can spot potential investment property long before it hits the market and understand the benefits of researching the properties that you may be interested in purchasing. When it comes to handling transactions real estate agents are a vital tool and can assist you to submit offers, draw up contracts and keep the deal moving in the right direction to complete the purchase successfully
It is important to choose your real estate agent carefully especially if you are a prolific investor. The right real estate agent can make the difference between making and breaking the deal.
Since 2010 MB Homes New England has offered professional Real Estate and investment management property services for home buyers, sellers and investors in Webster, MA, Dudley, MA, Douglas, MA, Auburn, MA, Oxford, MA, Thompson, CT, Pomfret, CT, Woodstock, CT, and Putnam, CT.
Please feel free to contact us today with any real estate related questions or if you would like to explore any of the of high standard services that we offer.