Investing In Properties, The Smart Way
The strong demand for rental property, low interest rates, and the potential for large returns are helping to make real estate an increasingly popular investment. We’ll take a look at the best reasons to get started with real estate investing, and some tips for purchasing rentals.
People invest in real estate for several reasons, including generating income, profiting from the potential appreciation in property value over the long term, and reducing taxable net income.
One of the unique things about real estate as an investment asset is that it may be possible to achieve all three of these things – income, long-term profit, and tax savings – at the same time while using your renters money.
Another reason people invest in real estate is to generate monthly cash flow. Depending on the type of real estate owned, an investor may earn income from dividend distributions from a REIT or crowdfund, or an annual cash return by directly owning a property.
Profit from Long-term Appreciation
Housing prices historically increase in value when held for the long term, although there may also be times when home prices decline.
According to the Federal Reserve, the median sales price of houses sold in the U.S. has increased by more than 25% since the 2nd quarter of 2020, and by over 94% since the end of the Global Financial Crisis (GFC) of 2007-2009.
Save Money on Taxes
The IRS offers real estate investors numerous tax deductions to reduce taxable net income. For example, rental property owners can deduct ordinary expenses from rental income collected, including:
- Property management fees
- Leasing commissions
- Repairs and maintenance
- Mortgage interest
- Property taxes
- HOA fees
Tips for Choosing a Single-family Rental
While investing in a single-family rental may offer the opportunity for recurring returns, directly owning rental real estate requires work and planning as well. Here are tips potential investors should consider before purchasing a single-family rental home:
- Pay off high-interest personal debt so that extra cash is available if and when it is needed.
- Save or raise money for a down payment, normally 25% of the purchase price for an investment property loan.
- Find a location where the population and job market are growing and the demand for rental property is strong.
- Contribute to a capital expense account so that you have savings available for major repairs and updating.
- Work with a trusted, professional real estate agent to help you find a property that works for you. By working with an experienced agent, they can help you decide between property management or doing it yourself.
- Purchase a landlord insurance policy and consider requiring the tenant to obtain a renters insurance policy if the local laws allow.
Investing in rental property is a huge decision and requires a lot of research. Instead of starting this process yourself, it’s always beneficial to talk with your local real estate agency to discuss the next steps and look at potential properties.
Our real estate agents at Coldwell Banker Carroll Realty have the knowledge and experience to help you invest in rental property. We have local realtors throughout Panama City, Panama City Beach, and 30a ready to help you on your way. Contact our locally owned, nationally recognized realty team today.