For as long as history has been recorded, people have been using real estate to increase their worth and grow their capital gains. Real estate has long been one of the safest and most popular choices for investment, even with the ups and downs the market has faced over recent years.
Many people consider purchasing real estate as a safer alternative to playing the stock market or investing in startup companies. But, for many, the start up costs can be daunting. Others sit back, waiting for prices to drop before making an investment. In most cases, they miss out on opportunities and never carry through with the idea in the long run.
The fact of the matter is, the longer you wait the less likely you are to do it. This concept applies to just about everything in life, but is especially true in the real estate industry. If you’ve been mulling over purchasing property as an investment, we’ve compiled a list of reasons why you should stop waiting and take the plunge in 2017.
When you purchase a property as an investment, you own a concrete asset. It’s something you can see, you can touch… and you can monetize. There is a comforting level of security when you put your money into property. You can gain constant revenue from the property by renting it out, or if you find yourself in need of free cash, you can sell it. And, the longer you hold on to the property, the more your investment will be worth—with proper maintenance, of course.
Property makes for a great inheritance for your children in the future. Passing down property to heirs, or setting up trusts to generate monthly income for your heirs, is a way to reap some of the tax benefits of owning property for long-term.
Easier to Leverage
When working with real estate as an investment tool, building wealth is much easier. After owning a property for several years, you are able to use the tenant’s monies to pay down the mortgage. This allows you to leverage the mortgage decrease by taking a loan out against the equity you have built into the home. In doing this, you can utilize the equity of one home to purchase another, and thus add to your real estate portfolio.
This is the most popular way for individuals to slowly increase their wealth without a large upfront investment.
There are multiple tax benefits to investing in real estate—far more than investing in stocks and bonds. If you purchased the property through the use of a mortgage, you are able to write off the interest you’ve paid throughout the year. Property expenses are also able to be claimed as tax write-offs. Any repairs or costs that directly result from upkeep of the property are able to be written off.
Multiple Avenues for Cash Flow
Unlike non-tangible investments, there are multiple avenues for gaining cash flow from property. If you own land, you can rent the property to farmers or horse owners as pasture or you can build on the property and sell or rent out these new units. If you own property with an existing house, you can rent the property for a monthly income or you can remodel, or “flip”, the property and sell for at a higher value than you purchased the home for.
Influx of Foreclosures
In recent years, there has been an influx of foreclosures on the market. This has left a steady stream of affordable houses on the market selling below their actual value. In addition to giving investors a large amount of inexpensive properties, these displaced homeowners have increased rental demand across the nation as they are unable to repurchase a home with a recent foreclosure.
Prices and Rates are Rising
In recent years, mortgage rates bottomed out—hitting the lowest they’ve been in years at a 3.55%. However, the Federal Reserve has been working to change that, raising key interest rates slowly over time. Currently, the average rate is above 4% but it is believed that mortgage rates will reach 6% by 2020.
Home prices are currently rising, too. From 2015 to 2016, housing prices rose approximately 5%. Experts are citing another 2-3% jump in prices by the end of 2017, with no ceiling in sight yet. If you purchase a home now, you’ll still be able to maintain a substantial profit with rental rates, instead of having to battle higher costs in subsequent years.
According to several real estate reports, in 2016 there was approximately 10% less houses on the market than there was in the previous year. This decline seems to be a steady trend currently, with the number of houses available for purchase decreasing every year. With Trump’s unsteady policies and rocky tax plans, experts believe people will be less inclined to sell their homes until the turbulent political situation calms down, causing a shortage of affordable homes on the market.
While stocks and bonds may come with small interest increases, real estate shows reliable, credible increases in appreciation values—especially if you purchase a foreclosure, short sale, or home in need of moderate repairs.
According to the United States census, real estate appreciation values increased 80-300%—depending on location—from 1970 to 2000. Keeping real estate investments long term increases the value you’ll appreciate over time, especially if a mortgage is involved.
Now is the time to drop what you’re doing and get serious about your dream of investing in real estate. Banks have loosened their harsh standards for loan approval over recent years, allowing those with steady jobs and decent credit to obtain loans fairly easily once again. Not to mention, prices are still reasonable, but the increases are coming—so it’s important to jump in now, while you’re still on the ground floor. But, the most important reason to get involved in real estate investing now, instead of putting it off, is that it is an investment… and investments take time. Don’t find yourself wishing you had started earlier—start now.