With the housing bubble pop nearly a decade behind us, reports are showing that people are warming back up to the idea of investing in real estate — and quickly.
A survey conducted by Bankrate concluded that over 1 in 4 Americans — or roughly 27 percent — believe real estate is the best method of investment, seeing as it provides a financial safety net in the form of income that would not be touched for 10 years or more.
According to attorney and CPA Mark J. Kohler, investing in real estate can enhance your financial future in a plethora of ways. For example, the tax writeoffs you accrue throughout your experience of managing and maintaining properties can be used against your other income.
Investing in real estate can also act as a forced retirement plan. Kohler explained that it is possible for such assets to counteract Americans’ neglectfulness in saving money. Cash flow from rental properties may be able to compensate for those deposits we forgot to make to our IRAs, SEPs or 401k plans.
Additionally, economic fluctuations may be leveraged to enhance an investor’s cash flow.
Firstly, as inflation occurs — as it so often does — properties appreciate in value. If the owner chooses to sell the property, they are almost guaranteed to get a higher return on investment than they would have previously.
Secondly, rental properties are an inflation-proof investment. While occupants’ monthly rent may rise with inflation, mortgage rates typically remain the same. Therefore, the landowner will receive an increased cash flow without incurring any additional expenses.
Cash flow can also be nearly to entirely tax-free. There are several methods to optimizing an investor’s cash flow, ranging from borrowing cash with tax-free loans, to sheltering cash flow with like-kind exchanges, to eliminating taxes completely via depreciation and mortgage rate deductions.
With all that being said, it is imperative that one does their fair share of research prior to diving into the real estate industry. After all, investment is a business and a carefully calculated risk, so it must be treated as such.
Keep in mind that investment is not an easy method to become wealthy overnight, and the process will not always be simple or even enjoyable. There will be many highs, lows and obstacles along the way. However, by remaining vigilant and never losing sight of why you started this venture to begin with, it is possible to overcome even the greatest adversity.