Investing in real estate can provide steady and predictable cash flow unlike most businesses. Most households could always find a use for some extra cash or an alternative steady stream of income. Many people turn to finding an extra job, some gravitate to starting a business or investing in the financial markets, but none of these avenues can almost guarantee your monthly income like real estate. By simply buying a property and renting to the general public of business, you can predict the amount of money your properties will generate for each lease, each month. In addition, you are only a rent-increase away from a pay-increase each year.
Tax Reducing Benefits
Income from a business comes along with a nice self-employment tax, but rental income from an investment property and in some cases proceeds from the sale of real estate is not subject to self-employment taxes. If the avoidance of self-employment taxes wasn’t enough, the mortgage interest paid each month is tax-deductible. In addition, the real estate investor can further decrease their tax burden by depreciating the property each year.
Use of Appreciation as a Hedge Against Inflation
Over time the cost of everything increases, including a home’s value. Buying a home requires a low down payment (relative to the total property purchase price) and yet carries the ability of the owner to entirely control the asset (the property) before actually paying for it in full. If the mortgage is kept current, the owner of property reaps the financial benefits of not only collected rents but also the future inflation-influence value of the property. Buying a home at today’s price and holding it for an extended period allows one to hedge against inflation. An investor, could buy a home for $200,000 today and sale the home in 15 years for $500,000. Make note, the investor never really pays for the property in full because a mortgage loan is obtained to buy the property, yet the real estate investor is able to enjoy the sale profit of $300,000 without ever fully paying for the original purchase price of $200,000. This future value of the home over the actual purchase price is known as appreciation.
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