With inflation on the rise, people are actively looking for ways for their money to go further, and to make investments that can increase their wealth. Instead of relying on one avenue of investments, it’s usually wise to have multiple income streams to buffer losses. Selling and exchanging stocks is a popular way to invest money, but investing in properties is also an excellent way to boost your net worth. while offering more stability.
Buying investment properties can make you money in a few different ways. If you’re interested in investing in real estate but don’t have the capital or experience to do it on your own, private real estate investment companies can be a great option. These companies pool funds from multiple investors to purchase and manage real estate properties, providing access to opportunities that may not be available to individual investors. Keep reading to learn about some of the ways you can benefit from investing in real estate properties, along with several key industry terms that are helpful to understand if you will be investing.
Table of Contents
Achieve Cash flow-
Cash flow is the amount of money you have available after collecting income and paying the mortgage and operating expenses on your property. The goal of property ownership is to create a regularly scheduled stream of income and generate what is known as positive cash flow, time so there is always enough to pay the bills when they come due. It doesn’t matter how much you are making; if that money isn’t available to pay off the bills on time, you will incur financial penalties, defeating the purpose.
Benefit from tax breaks/deductions-
Some of the best reasons to buy an investment property are the tax write-offs for owning and managing the property. When you buy a property and begin renting it out, you can enjoy some helpful breaks on expenses and administrative fees, including:
- The mortgage interest paid on the loan
- Origination points paid on the loan
- Maintenance expenses
- Homeowner’s insurance, applicable HOA fees, and real estate taxes
While these are fairly standard, you should always consult a tax advisor before filing taxes. You may think that each of these applies to your situation, but a professional will let you know what you can and can’t write off.
Diversify your portfolio-
Keeping a diverse portfolio can help reduce the chances of losing a significant amount of wealth if one category dips. For example, people often invest in stocks and bonds, which can yield high risks, and real estate can help to balance your portfolio. What’s great about real estate is that it has a low or negative correlation when it comes to other significant asset classes.
Create a hedge against inflation-
As we all know too well from recent inflation increases, the prices of nearly everything from basics to luxuries are going up while salaries are not (if so, minimally). Investing in real estate can be a powerful hedge against inflation. As inflation rises, so should the value of your home.
Equity builds as the mortgage is paid off. Equity is essentially an asset, and as you build more equity, you have more leverage to borrow and invest in more properties. The more properties you have that are generating revenue, the more cash flow.
Benefits of Real Estate
Along with the ways that you can make cash, you can also enjoy personal benefits such as:
Financial security is something that everyone wants to enjoy. Historically, a home that you purchase is likely to appreciate if you hold onto it long enough. The housing market experiences highs and lows, but usually eventually rises again. Buying real estate can be used to increase cash flow by renting it out, or holding onto a property and selling it for a profit. Many people also choose to fix up and flip homes and turn considerable profits.
Real estate can be inherited-
Imagine you find the perfect home for you and your family, but you are afraid it will be forfeited if something happens to you. Fear not, properly managed, homes can be passed on from generation to generation. Instead of leaving a stagnant cash amount, a real estate property can continue to generate income through renting or selling for a larger profit.
How Do I Know a Property is Profitable?
When considering purchasing real estate property, you want to ensure you are buying a property that will be a good investment. You can do this by looking out for:
- Desirable neighborhoods (quiet, walkable, good schools)
- Convenience (amenities)
- Low crime rate
- Investments that renters would want (condos, townhomes, etc.)
- Prices of recently sold homes/ comparables with current average sale prices in similar neighborhoods
Viewing your interested properties in person is a must before purchasing. The property may look a certain way through pictures, but feel completely different once you step foot inside. Going to the physical location is the best way to get a feel for whether the real estate investment is worth it for you financially.
If you are part of a large group interested in viewing real estate properties you can use services such as group transportation Los Angeles. This allows everyone in the group to arrive at the locations without worrying about separate vehicles or parking. You can easily ride from property to property for a day full of viewings.
Ultimately, real estate can be a sound investment. You can buy properties to rent them out, or you can fix them up and turn them for a profit. Whichever real estate avenue piques your interest, owning a property can be a great way to diversify your portfolio, receive generous tax breaks, and hedge against inflation.