Should You Invest in Real Estate?
Real Estate Investing Offers Four Big Advantages
There are hundreds of great reasons to invest in real estate, but is it right for you? We try to cover some of the simple bases that can help lead you in the right direction.
First of all, only invest in real estate if you are very patient. If you are looking to make a quick buck by flipping houses or speculating on condos then you should NOT invest in real estate. Real estate is a unique investment because it is the buying of real property, versus buying stock which is a share of a company's business.
Buying real property requires much more commitment and follow through than buying and selling other investments. The costs to acquire and dispose of property are high and include commissions, loan fees, appraisals, inspections, filing fees and advertising costs; not to mention the large amount of time it takes to find, maintain, buy and sell a property.
Once you own the property, especially if it is a rental, you will have to deal with maintenance, tenants, legal rights, insurance, contractors and the tax and accounting effects of real estate ownership. Overall, the monetary and time costs of investing in real estate are very high.
With that said, investing in real estate can be very rewarding and offers lots of great tax breaks. If you're not scared of all the costs mentioned above, and you are very self-determined and driven to make it work, here are the things you can look forward to:
First of all, real estate is more stable than stocks. Even though real estate prices do go down, they typically go up and down in more controlled levels than other investments.
Second, buying real estate uses leverage to magnify your returns. For example, you can buy a $300,000 property with only $30,000. When the property rises 5%, you make $15,000 on your investment of $30,000, which is a 50% return on your money. But remember, leverage works the opposite way too. If prices go down you could lose all of your investment very quickly.
Third, owning investment property offers lots of tax breaks. The interest, taxes and insurance are deductible against the rents that it generates. And losses can be deducted against your personal income to greatly reduce your tax burden. Furthermore, assets such as phones, computers, tax software, mileage and other work-related expenses can also be deducted to make your paper profit lower and to reduce your taxes.
Fourth, buying real estate is a great way to diversify your investments. If you have a lot of money in stocks, bonds and 401Ks, it makes more sense to invest in real estate.
See Also: Investing Article for Beginners