When it comes to real estate investing, you have a range of options. You can purchase a commercial property such as a shopping center, build industrial real estate, or buy residential property such as a single-family home. Although the first two generally make more money, they’re not for everyone, considering how pricey commercial and industrial properties are. That’s why, if you’re a first-time investor, you should set your sights on residential properties instead. Here’s why:
#1 It Is a Relatively Safe Investment
Real estate is safer and this is one of the main reasons income property is a good investment. Compared to stocks and bonds where there are a variety of factors beyond your control, real estate offers far better returns as well as lower volatility. Real estate is more stable – this means that when the market fluctuates drastically, real estate prices may not drop. While there may be a couple of setbacks, real estate will always make a comeback – all it takes is time.
What’s more, your property can protect you against inflation. When the prices rise, so will your real estate investment’s value. You’ll also be able to raise your rent as the cost of goods and commodities rise, too.
#2 It Is Tangible
How do you prove to people that you’ve invested in stocks? The answer: with paper. When the stock market crashes, what will you be left with? Nothing but a piece of paper.
When you invest in residential real estate, you’ll have a real asset. While its value may increase and decrease over the years, it will always have value. In other words, it will always be worth something. Should you need to stop investing, all you’ve got to do is sell your property when the timing is right.
#3 It Increases in Value
The golden rule in real estate is that the longer you hold onto your property, the more money you can generate. Compared to assets such as cars, which decrease in value over time, real estate will continue to appreciate. It may take a downturn at times, but with time, it will eventually recover.
There are also several ways to increase your asset’s value. Also called forced appreciation, this is the process of increasing the property’s value via renovations. While you can wait for your asset to appreciate on its own, it will take time, which is why many investors have chosen to force-appreciate their properties. You could, for instance, add a bedroom to increase its value by thousands of dollars.
Note that not all improvements can increase your investment’s value. So, if you plan to conduct home renovations, consult a licensed appraiser or residential property management company first. With them by your side, you can properly determine which improvements provide the best return on investment (ROI).
#4 It Offers Full Control
As a residential real estate investor, you get to decide what you want to do with your assets. Whether you want to turn it into a rental to receive passive income, or you want to convert it into a short-term rental over the summer, you have complete control over your property. You could also use it as your residence and then sell it as soon as prices rise. Or, you could rent it out for now and then turn it into your retirement home when the time comes.
If you do decide to convert it into a rental, you’ll have total control over rent, tenants, and so on. With that said, you’ll also be responsible for how well-kempt your property will be and how much money you will make. You may be your own boss, but remember that it comes with certain responsibilities. That’s why many real estate investors work with a residential property management firm to help them attend to their property’s day-to-day demands.
#5 It Numerous Tax Write-Offs
One of the reasons why people invest in residential real estate is that it offers numerous tax write-offs. Note that by renting out your home, you run a business as a landlord. As a business owner, you can benefit from a range of write-offs including depreciation, maintenance and repair costs, property management fees, mortgage interest, and more.
Consult a real estate expert on what expenses you can write off. Some costs, such as excessive travel expenses, may not be subtracted from your taxes. But the ability to decrease your taxes is already a benefit you can’t find in other investments such as bonds, making it a comparably better choice.
#6 It Offers Consistent Cash Flow
Residential real estate is one of the best ways to boost your monthly income. It offers a consistent cash flow in the form of monthly rent. It’s an excellent way to earn passive income, particularly if you aren’t a fan of the 9-to-5, or if you simply want to make extra money. All you need to do is attend to some admin duties, conduct repairs, and maintain the property. Or, if you partner with a South Florida property management firm, you won’t even have to do any of the heavy-lifting, as they will take care of everything for you.
However, it’s worth mentioning that you may not earn consistent money if your tenants fail to pay their rent on time. Be sure to rent to only responsible and reliable tenants who are sure to pay before the due date. Consider partnering with a residential property management company to screen your tenants following strict standards. They will check their credit score, employment, criminal record, and more to make sure they won’t cause any issues to your cash flow.
#7 You Can Leverage Residential Real Estate
Real estate leverage is when you purchase a property with money that you’ve borrowed. By leveraging borrowed money, you’ll be able to buy properties that you otherwise wouldn’t be able to buy on your own. In general, as long as you can pay 20% of the purchase price, you’ll be able to buy a property even if it’s currently beyond what you can afford. This makes the real estate market more “welcoming” to new investors, even those who don’t have hundreds of thousands of dollars in savings.
Planning on Investing in Residential Real Estate?
Before you buy your first property, be sure to consult the experts at Luxury Property Care. This will allow you to make sure you’re putting your money into money-making properties. Real estate is generally a good investment, however, some properties have more earning potential than others. A property management company such as Luxury Property Care can pinpoint exactly which properties you should acquire.