Investing in real estate is a great way to generate a steady, passive income. Rental properties are a favorite among investors and provide a better return when interest rates are low based on the price/rent ratio. Another great way to invest is building equity. For every dollar invested in a property, an additional percentage can be made in home equity.
Here are just a few perks to investing in real estate:
- Cash flow: Rental properties are highly desirable for their ability to generate positive cash flow. This means after your mortgage and other housing-related expenses are paid off, you have extra money in your pocket.
- Appreciation: Not always but more often than not, home values tend to appreciate over time, especially in California, so the longer you own a property, the more it should be worth.
- Leverage: A lesser-known advantage of owning real estate is using the property as leverage. By consistently paying down the mortgage you have the opportunity to tap into the equity you have built up. This can serve as a great emergency fund!
- Tax advantages: Landlords have a few tax advantages over conventional homeowners because they can deduct items like interest, insurance, maintenance and even depreciation as business write-offs.
But before you dive into real estate investing, be sure to do your research. When you’re ready to start, talk to a realtor in your target area. Find out what features in homes are selling well and what the average rents are in the area. Ask how long homes typically stay on the market and look at comparable sales. Investigate taxes in a particular area as well. Different states and counties may have different property tax rates for homes used as a personal residence versus rental properties.
Armed with a bit of real estate knowledge, money to invest and time to do your homework, building wealth through real estate can be a smart investment and one that continues to reap rewards for many years to come.