Investing in real estate property for sale is a smart financial move for many reasons. Rental income and appreciation make real estate a good investment. This investment provides portfolio diversification. Rather than putting all your eggs in the stock market basket, real estate allows you to spread out risk across different asset classes. Property values tend to be less volatile than stocks and bonds. Adding real estate to an investment portfolio provides broader diversification.
Property values historically rise over time. Land and buildings in desirable areas tend to increase in value, especially in growing cities. Real estate in up-and-coming neighborhoods appreciates rapidly. While there are no guarantees, real estate purchased at a good price today becomes more valuable down the road, leading to profits when sold. Real estate investors often buy with a low down payment and finance much of the purchase price with a mortgage loan. This allows leveraging a small amount of capital into a larger investment. If the property appreciates substantially, an investor stands to gain a higher return on the down payment versus buying the property all cash.
Real estate investors claim tax deductions for expenses like property taxes, insurance, maintenance, utilities, and travel to the property. Costs attributable to a rental property can be deducted against rental income. Depreciation deductions on the property and improvements also reduce taxable rental income. An income-producing rental property generates ongoing income from tenant rents. Successful real estate investors seek properties where the rental income exceeds expenses each month. Rental income can offset the mortgage payment and generate monthly cash flow. Appreciation over time further boosts investment returns.
Unlike stocks or bonds, real estate allows the investor to exert control through property upgrades and management practices. They also optimize rents and tenant qualifications. Taking an active role allows investors to boost returns. Investors able to obtain low-interest rates realize better returns on rental property investments. More rental income goes straight to the bottom line rather than interest expense. Refinancing also allows for replacing higher-rate mortgages as interest rates decline.
Hedge against inflation
Real estate values tend to rise along with inflation, acting as a hedge against inflation. As prices rise in the economy, real estate tends to appreciate accordingly. The rental income from Real Estate in Phangan also tends to rise with inflation, allowing landlords to increase rents over time. Unlike borrowing for a primary residence, the mortgage interest and other costs paid on a rental property are deducted against the rental income. This effectively reduces the net cost of financing for an investment property. Investors should discuss the tax implications with a CPA or tax advisor.
Potential for forced appreciation
Replacing outdated kitchens or bathrooms, modernizing, adding square footage, or improving landscaping are all ways to potentially increase a property’s value. Investors may also alter the zoning of a property to allow for more tenants or higher rents per square foot. Investors have numerous options for financing investment property purchases if they do not want to pay all cash. Beyond traditional mortgages, financing methods include private lending, partnerships, creative seller financing, installment land contracts, and real estate crowdfunding platforms. The future income potential of a property allows flexible financing options.