Real estate investment is one of the primary ways Americans build wealth. It can be a highly profitable activity - and especially so if you are willing to hold on to property for years at a time. The reason: It’s all about appreciation.
Appreciation, in a nutshell, refers to the value of a property growing over time. It is, however, possible for your investment to go south if the market tanks. In this article, we’ll discuss the pros and cons of real estate investment so you can make better decisions on the benefits and risks.
Regardless of the current state of the market, it’s usually a wise decision to invest in property when you can purchase it at below-market prices. Some sellers are looking to get out of their property in a hurry - and if you have sufficient cash on hand, it can be a great investment.
But taking advantage of these anomalies requires thorough knowledge of local market prices. This is easier to understand when you’re committed to real estate investment full time. If you’re still new, it’s never a bad idea to check with a real estate agent that can help you snap up properties that owners are looking to get out from underneath.
Real Estate investments can also generate steady cash inflows
One of the prime benefits of real estate is that it can serve as a steady stream of income without you ever having to lift a finger. This comes to you in the form of rent payments.
Some properties can even have additional payments associated with them like laundry machines, storage and parking. Depending on how high your overhead is, you may be surprised at how substantial your cash inflows may be.
It can provide a depreciation tax shield by creating a depreciation expense that can be claimed on a real estate investment involving no cash outflow, and yet reduces the amount of taxable income – thereby shielding you from a portion of the taxes that would otherwise be due. Currently, the depreciation period for residential real estate is 27½ years, while the depreciation period for commercial buildings is 39 years.
Depending on the location, real estate tends to appreciate (depending on local demand, of course). This can vary widely even within short distances. If you choose your property carefully, it can appreciate a great deal over long periods of time. If you choose to fix up and renovate your property, it can increase your property value even faster.
Real Estate can help provide a hedge against Inflation
One of the terrible side effects of inflation is how it cuts into earnings generated by most forms of investment. Real estate, however, tends to be the exception because it appreciates faster than the rate of inflation. Part of the reason for this is because investors treat real estate like a hedge against inflation. They’ll even bid up the prices of property when inflation is high. And because real estate tends to be considered a safe investment, you can rest assured that value will continue to increase during times of uncertainty.
Comentarios