It isn’t rocket science but it requires patience, perseverance, and knowledge of the pros and cons, dos and don’ts. Be equipped with the understanding you need to make it a success.
If you’re new to property investment you probably have a lot of questions. That’s understandable and smart. Active real estate investing isn’t for everyone. Why? There are risks and obstacles that may not be obvious unless you’re in the know. For one thing, you don’t instantly begin building wealth. But if you’re patient and work it right, property investment can be a lucrative wealth building strategy.
To help add some clarity to your decision making, we’ve compiled a guide to Property Investment 101. It’s smart to be informed before stepping into new ventures — especially investments.
1. Over time, a real estate investment can be a better choice than the stock market.Real estate maintains a better intrinsic value. A stock might depreciate when property remains a tangible asset.
2. Tax benefits of property investment allow investors to grow wealth over time. Rental income is not subject to self-employment tax, and the government offers tax benefits to real estate investors, including depreciation. Because rental real estate is a business with expenses attached, you can deduct them as part of running your business.
3. Rental properties can be a great cash flow once your property is set up and running smoothly. The extra income gives you more time to build your business or have free time with family.
4. Leverage can be a powerful tool to use borrowed capital to purchase and/or increase the potential return on investment. This helps to quickly grow your real estate investments and build wealth. Low interest rate markets are a boon to leveraging.
5. When you have quality tenants who are basically buying the property for you, it’s like a savings account that grows without depositing money into it!
6. Real estate investing gives you more control than other forms of investing. If you’re in a competitive rental market, you can ensure that you get the very best tenants by making improvements to increase your rental income.
7. Inflation can diminish the value of many investments, but real estate investments tend to keep pace with inflation.The one thing that doesn’t increase is the monthly cost of a fixed-rate mortgage payment. So your annual rental income can increase, but your cost of ownership remains the same.
1. It takes money to make money, so to get started, you will need a down payment plus closing costs and repair and maintenance money.You will also have ongoing expenses like property taxes, insurance, mortgage payments, and property maintenance.
2. The learning curve to understand real estate investment depends on how much time you have to devote. You stand to lose money if you jump in unprepared. Also, actively managing your rental properties is time consuming.
3. Real estate investors must be in it for the long haul. You have a tangible asset that you cannot quickly liquidate for cash if you need emergency funds. It takes more time to sell a property than it does to sell stock shares.
4. Owning rental properties means managing tenants, some of whom can be problematic.You’ll be in cash-flow-trouble if you end up renting to a tenant who doesn’t pay or leaves the property in bad condition, or both.
5. Before assuming you qualify for any tax breaks, consult with a tax professional. Depending on your income level, tax breaks vary.
6. Understand the risk associated with property investment, such as:
- Buying the wrong property at the wrong time
- Increase liability for accidents on your property
- Undesirable, troublesome renters
- Getting into too much debt
You will need to build a team of contractors, lenders, property managers, and other professionals who provide competent services at reasonable prices. Build a database of reliable, go-to resources.
As you build your property investment business, whether full time or part time, you will be able to rely on professional property management experts. Cousin James Management has been helping property investors for over 20 years, relieving the burden of time-consuming management. From locating and screening the highest quality tenants to managing bothersome repairs and renovations. We can even collect your rental payments and handle your financial bookkeeping.
Even if you’re just getting started, contact Cousin James Management to get answers to questions. We’re here to help you succeed in your property investment endeavors!