Tips for Investing in Real Estate
Diving into Real Estate as an investment is a big decision. However, with the right planning and experts at your side you can enjoy a great return for your money.
The saying in investing has always been to diversify your portfolio. This means stocks, bonds, real estate etc. While it is a personal decision on how you diversify and where you choose to put your money one things is certain, you should consider real estate investing. Real estate investing allows you to invest your money passively if you choose, adding to your yearly income with less effort than an additional job.
Today that looks different than it has in the past. You can own property which you flip (fixing up and then selling quickly for a profit), you can rent your properties (whether commercial or residential), turnkey, land development, you can list your property on Airbnb or Homeaway or VRBO to make money while you are away, or buy property exclusively for vacation rentals. Making a decision on what type of real estate investor you wish to be is a completely personal. Think about what type of investor you want to be, how much time do you have to give-do you want to be a full-time landlord, or hire a management company, do you want to flip houses and sell them and move on to the next one, or do you want to just make a little extra income with an Airbnb type of property?
These are some of the top reasons to invest in real estate:
1. Diversification-As mentioned above most great investors will tell you to diversify your investments, real estate offers a great diversification from stocks, bonds etc.
2. Leverage-Leverage is the use of borrowed capital to increase your potential investment. If you use 20,000.00 of your own money and 200,000.00 of the banks money your investment potential is much greater than if you only had 20,000.00 to invest. (example: 10% profit on 20,000.00 is 2,000.00 10% profit on 200,000.00 is 20,000.00.)
3. Lower Interest Rates-The interest rates are still very low right now offering a great opportunity to invest capital with a lower mortgage payment.
4. Appreciation-The value of your property can increase based on increase in demand, changes in supply, improvements to the property or changes in inflation or interest rates. According the National Association of Realtors, the appreciation levels for real estate have been 6% per year on average, this was even during the Great Recession. For the years 2000-2014 equity real estate has outperformed all other alternative investments with 11.3% annualized returns, according to the CEM Benchmarking.
5. Tax benefits-When you own property you can make tax deductions like mortgage insurance, maintenance, upkeep, depreciation etc. If you qualify for real estate being your business (there are guidelines for this so check with your tax advisor) you can also write off expenses associated with your investments. Any capital gains taxes you may pay when you sell your house are usually taxed at 15-20% which is a lower rate than many people pay on their taxes so you get to keep more of your profit.
6. Positive cash flow- This is possible when you are renting property. If you have invested wisely then your renter should be paying more than your expenses providing you positive cash flow every year. If you choose to flip houses then you also have (hopefully) have positive cash flow as you sell each property. Positive cash flow gives you more money to invest, save or spend.
7. More control over your investment-Investing in stocks and bonds puts you in a position of investing your money and then hoping it performs. When you purchase real estate you have more control over your investment and you choose exactly where your money goes.
When you are ready to start investing make sure the amount of money you are projecting to make on a property is as much or more than you would make on other investments. It is easy to fall in love with a property but this is a business decision. Make a plan and then find the home which fits your plan. This is why we strongly encourage working with us. Once we know your plan we will work to find the right properties to fit your plan and your goals. We can be objective and with our vast knowledge of the Seattle area we can help save you time and money by targeting the neighborhoods which fit your plan the best.
Our clients have appreciated our ability to help them as they build their investment portfolio in the past. You can see some of the reviews here. Contact us to talk about your goals and plans. Make this year the year you reach your financial goals and start to build a solid investment portfolio.
You can follow us to stay in touch with what is happening in the Seattle market, as well as finding a lot more tips and information on the real estate market, news and DIY tips. We are on Facebook, Instagram, Twitter and LinkedIn.