What Is an Investment Property?

Discovering the Little Known Expert Basics to Real Estate Investment Is the Foundation to Building Long Term Wealth.

With an unpredictable stock market and other traditional investment opportunities becoming more and more challenging to break into, real estate is one of the most reliable and tangible ways to leverage and grow your wealth. What is an investment property, exactly? An investment property is a secured real estate property you purchase with the intent to receive a return on investment, rather than solely residing in the property.

Building equity over time coupled with the power of compounding can be one of the best ways to build wealth while utilizing numerous financial advantages. Not every piece of real property is a good investment. It takes experience, skill, and specific knowledge in a particular geographic market to identify what will significantly appreciate over time.

Why should I invest in real estate?

There are numerous reasons to invest in real estate as soon as you can. The benefits you receive from an investment only compound over time. Of course, you don’t want to jump into real estate investment blindly, as Erik Carter, Senior Financial Resident of Finesse stated in a recent Forbes article:

“The important thing is to go into it with both eyes open. It’s not just location, location, location. It’s also education, education, education.”

Here are just a few potential advantages you can expect when looking at real estate investment.

There are enormous tax benefits when you own investment properties.

With the recent Tax Cuts and Jobs Act of 2018, real estate has become an even better investment. Landlords can quality for a special income tax deduction of up to 20% of their net rental income or 2.5% of the initial cost of the property plus 25% of what they pay any individuals they employ. This can provide some incredible savings for those looking to lessen their tax burden. James Harris, Co-Founder of Bond Street Partners, describes additional benefits of owning an investment property in a recent Entreprenuer.com article.

“You can get tax deductions on mortgage interest, cash flow from investment properties, operating expenses and costs, property taxes, insurance and depreciation (even if the property gains value) and other benefits.”

If you have an interest in investing in real estate, it is vital to speak to a licensed accountant to discuss all the tax benefits and deductions you may be eligible for.

Real estate investment provides reliable and in many cases substantial returns compared to traditional stocks and assets during different holding periods.

Historically, real estate is one of the safest sectors to invest in. Until 2008, there hadn’t been any significant declines in housing appreciation in a significant period of time. Even factoring in the housing crisis, average returns have outpaced the stock market. House Canary, a real estate analytics firm, reported that nationally, investors saw an 8.47% return on investment (ROI) for residential rental properties in Q4 2018, with long term investment potential hovering around 10%. In contrast, MarketWatch reported declines in annual returns of traditional stocks and other assets in 2018, with the S&P falling 6.2% and the Dow dropping 5.6% for the year, making it “…the worst performance seen since 2008.” With constant uncertainty surrounding international trade and currencies, more and more investors looking to invest in residential properties for sustained wealth.

Real estate keeps pace with inflation.

Unlike the stock market or traditional investment assets, real estate nearly always kept up with inflation. As the cost of living increases, rental prices have a high probability of increasing along with the property’s value. Since inflation has no impact on mortgage payments, debt to equity ratios only improve over time for real estate investors.

Real estate will always hold tangible value.

There are very few investments you can make that will promise that it will always hold some value. Because it is a physical asset, even aside from the structure, the land in which a property is built on will always be worth something. Comparatively to stocks that could drop to nothing, real estate is a much less risky option.

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