Investing in real estate has long been a tried and true way to grow a fortune. Until recently, of course, the stock market was not accessible to the average investor, and even with easy online investing, many investors have had their fingers burned.
While no one should push themselves outside of their expertise and comfort zone, the fact remains that people will always need a place to live.
In 2012, the homeownership rate fell to 65.4%. That’s the lowest it’s been since 1996. Additionally, construction rates are exceptionally high due to the high cost of lumber, despite labor costs having dropped. That means there is little to no new construction — limiting the available places to live.
Combine the deflated real estate market with interest rates at near-historical lows, and you have an ideal starting position from which to enjoy your investment’s appreciation.
Things To Keep In Mind While Investing in Real Estate
Unlike index funds, real estate is not a passive investment. You really have to know your market. The local economy, the rents, the good neighborhoods and schools– you need to pay careful attention to these trends to get the best return on your investment.
Most real estate investors, though, invest on the side, in addition to their day jobs. Market research can be done on their schedule, but dealing with the needs of tenants cannot be. That’s why many real estate investors make sure to allow for the cost of a property management firm when figuring their potential return-on-investment. A property management company like RPM is on call 24/7 to manage rents and deal with tenant concerns, allowing the investor to do things like research their next investment.
“Flipping” houses, while less profitable now, is still an option. However, few people seem to realize the tax implications of selling a home that they have owned less than 5 years, if they aren’t living in it for at least two of those years. Such a home will be hit with capital gains taxes. Additionally, mortgages for investment properties have different requirements than those for homes you plan to live in. You should always discuss the tax and legal implications with your accountant and lawyer, respectively, before making the leap, or your returns may be lower than expected.
The Benefits of Investing in Real Estate
Unlike the stock market, real estate is tangible. When you tour a property, you can see the possibilities. Many people feel more in control of their investments because it’s something real, and not some strange derivative that no one understands. It’s also a way to contribute to your local economy and give back to the community. Real estate can be a great investment vehicle. And if you need any help managing your investment, be sure to give Real Property Management a call.
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