Why Real Estate is a Good Investment
Choosing to invest in real estate is not only a great way to make money, but it’s also a lucrative way to invest without huge risk and leave a legacy for your family. Here are some of the reasons why we believe real estate is a good investment.
Cash flow
When you invest in real estate, you will presumably have a tenant who is paying rent on that property. The money that you receive from that tenant on a weekly, monthly, or quarterly basis is your cash flow. The best thing about it is that you don’t have to do anything to receive it. It is completely passive in nature–an automatic payment that arrives at an agreed time from the asset itself (your property). Cash flow is equal to the amount you receive from your tenants, minus mortgage payments and any repairs that you need to do. It will strengthen with time as you pay off your mortgage.
Tax Breaks
Another reason why real estate is a good investment is because you can offset a lot of your costs by taking advantage of tax breaks. Often, depending on the nature of the expenditure, you can get tax breaks on owning, operating, and maintaining your property. A great list of tax breaks you can receive is here.
Depreciation is a net loss on your property even if you are making money from renters. This is simply because, as the property ages, you will need to make repairs in order to maintain it. A depreciation deduction can help cover the costs of wear and tear over a long period of time by reducing your taxable income.
Another great tax break that can build your portfolio and balloon your equity is called a 1031 Tax Deferred Exchange. Instead of paying capital gains tax, you reinvest into a similar property and defer your tax payment. This is especially helpful if you want to buy a similar property in a location where you can charge higher rent. As long as the value of the property you are looking to buy is equal or higher than the one you are selling, the 1030 Tax Deferred Exchange is yet another reason why investing in real estate is a good idea.
Real estate is a long-term play
Unlike the stock market that goes up and down, investing in real estate is a safer and steadier way to invest. It’s not fool-proof, but if you do your research and work with a licensed real estate professional, it’s easier to avoid undesirable properties in the wrong locations.
Because real estate is a long-term play, you can buy a property when the market is low. Over time, if you’ve made an informed decision, that property will appreciate in value. This is unlike trading stocks, where the value can move up or down on a daily basis. Feeling confident and having peace of mind about your decisions is yet another reason why real estate is a good investment.
Appreciation
Most property will appreciate in value over time. According to Neighborhood Scout, houses in Milwaukee appreciated in value by a little over two percent. So, if you bought a house for $200,000 last year, this year you could sell it for $204,000. Every year, your investment would go up in value. You would be able to turn a profit if you needed to sell or decided to do a 1031 Exchange.
The appreciation of your real estate investment also makes it a great legacy to leave to your family. This may come with tax implications. A good lawyer can advise you on the best way to leave property to your children or another family member.
Interested in real estate investment? Get in touch with us! We would love to discuss your thoughts, aspirations, and goals for becoming a property owner.