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Real estate has been a cornerstone of the American economy for centuries, and there’s a good reason. It’s a stable, reliable investment that provides a steady income stream while appreciating value over time. Here are the five types of Real Estate:
- Residential
- Commercial
- Industrial
- Real Estate Investment Trust (REIT)
- Raw Land
Why Choose Real Estate Investment?
When it comes to making a sound investment, real estate is a smart move for anyone, regardless of experience. Here are just a few reasons why:
Real estate offers stability and security
When the housing market crashed, as it did in 2008, people who invested in stocks or other forms of paper assets lost a lot of money. But real estate values eventually recovered and, in many cases, increased. That’s because people always need a place to live, so there’s always a demand for housing. And as the population grows, the demand for housing increases, which drives up prices.
Real estate is a tangible asset
When you invest in real estate, you’re buying a physical property that you can see, touch, and even improve. This contrasts with stocks or other forms of paper assets, which are intangible and can disappear overnight.
For example, if a company goes bankrupt, its stock becomes worthless. But a physical property can be sold, leased, or even used as collateral for a loan, which means it still has value even if the market is crashing.
Real estate is a long-term investment
It can take years for a real estate investment to appreciate in value, but it’s worth the wait. In the meantime, you can generate income by renting out the property. And when you eventually sell, you stand to make a hefty profit.
Let’s assume you don’t have enough cash but desire a residential property that you plan to convert into a source of income. You can be a first-time home buyer loan applicant who may borrow up to $500,000 with a down payment of as little as 3.5% of the purchase price. Rental income will pay off your mortgage, and property values usually appreciate over time; this can be a wise long-term investment.
Real estate offers tax benefits
Investing in real estate can deduct various expenses, including mortgage interest, property taxes, and repairs and maintenance. This can significantly reduce your taxable income, which means you’ll pay less in taxes.
Suppose you buy a rental property for $250,000 and spend $20,000 on repairs and renovations. You can deduct the $20,000 from your taxable income, which reduces your tax bill by up to $6,000.
In addition, when you eventually sell the property, you can take advantage of the capital gains exclusion, which allows you to exclude up to $250,000 (or $500,000 for married couples) of your profits from taxes.
The risks of real estate investment
Like any investment, there are risks and rewards to consider before you jump in.
The risks of real estate investment include:
- The potential for loss: If the property doesn’t appreciate in value or generate enough income, you could lose money on your investment.
- The possibility of tenant damage: If you rent out your property, there’s always the risk that your tenants will damage the property.
- The high cost of repairs and renovations: It can be expensive if you need to make significant repairs or renovations.
- The time commitment: Being a landlord can be time-consuming, especially if you have problem tenants.
Tips for success in real estate investment
Now that you know the risks of real estate investment, here are a few tips to help you succeed:
- Do your homework – Before investing in a property, it’s important to research and ensure you’re getting a good deal. Be sure to look at comparable properties in the area to get an idea of what the property is worth.
- Get help from a professional – If you’re not sure where to start, it’s a good idea to get help from a real estate agent or broker. They can help you find the right property and negotiate the best price.
- Have realistic expectations – It’s important to have realistic expectations when investing in real estate. Remember that it’s a long-term investment, so don’t expect to make a fortune overnight.
- Diversify your portfolio – Don’t put all your eggs in one basket. When you diversify your portfolio, you spread the risk and can potentially make more money in the long run.
- Be patient – Don’t expect to make a killing in the real estate market overnight. It takes time for properties to appreciate value, so be patient and hold onto your investment for the long haul.
To sum up
Suppose you’re looking for a way to ensure your financial security and grow your wealth over time. In that case, real estate investment is one of the smartest moves anyone can make. With interest rates still at historic lows, now is an excellent time to buy property. It may seem like a daunting task, but with the help of a qualified agent or broker and a solid real estate business plan, it can be easy and fun.
