How Investing in Property Can Change Your Financial Future
In this age of sky-high student loans and rampant credit card debt, the prospect of having financial freedom can seem almost impossible. With the right investments, however, you can passively build your wealth and pave the way to reaching your financial goals.
As with any investment, nothing is guaranteed; there’s always a risk you won’t get your initial money back. If you invest in property, though, you can minimize some of those risks and increase your odds of seeing positive returns.
Why Should You Invest in Property?
Historically, Real Estate Beats the Stock Market
When people think about investing their money, one of the first ideas that often comes to mind is the stock market. When you just look at the numbers, investing in the market seems to yield a higher return than real estate. The stock market, however, is notoriously volatile, and many factors beyond your control can directly affect your investment. With real estate, a market improvement means an improvement in the value of your home. That, in turn, means you enjoy greater equity.
Keep in mind, of course, the longer you hold onto your home, the greater your chance of seeing substantial returns, which means you generally have to be patient in order to see a good return on your investment.
Your Home and Land Will Never Lose All Their Value
Stocks can plummet all the way to zero. Cars can depreciate to the point of having essentially no tangible cash value. Homes, on the other hand, will always provide you with some value, as will the land on which your property sits. Even if the real estate market dips, your home and property and simply never going to be worth nothing, which is a very real possibility with other kinds of investments.
Because you want to do everything in your power to protect that extremely valuable asset, make sure you have the most comprehensive homeowners insurance policy you can get. If disaster strikes, you want to be able to rest easy knowing you’re fully covered.
Real Estate Gives You More Freedom to Diversify
It’s one of the cardinal rules of investing: diversify your portfolio. When you have all your money invested in one venture or financial subset, you risk losing everything if that one thing collapses. Because real estate is generally considered one of the safer financial investments, it gives you more confidence and leeway to invest in potentially riskier ventures (with correspondingly higher potential returns). If those investments end up working out well for you, the very fact of having real estate allowed you to grow your wealth even faster and more aggressively.
Real Estate Increases Over Time
Even when home values have slipped, such as during the Great Recession, the market has always bounced back. Time and time again, despite burst housing market bubbles and other downturns, the numbers show that the longer you hold onto your property, the more money you’re going to make.
Real Estate Tax Breaks Are Favorable
There are many financial benefits to owning a home, including lucrative tax breaks. When you own your property, you can deduct items like mortgage interest, property taxes, homeowners insurance, and more. All this reduces the amount of your taxable income, which can make a big difference come tax time. In some cases, you can even reduce your taxable income into a lower bracket (taxed at a smaller percentage), and this can make a significant difference in how much you owe in federal taxes. Always consult a professional accountant to ensure you’re deducting everything correctly, as well as taking all the breaks available to you.
Climb the Real Estate Ladder
Once you’re in the market, you can start to climb the “real estate ladder.” Basically, after you sell your first home, you can convert the profits into a down payment on a nicer, more valuable home. When you sell that more valuable home, you’ll have even more to invest in a home that’s more valuable still. After several rungs up the ladder, you can suddenly find yourself with an incredibly valuable asset that can go a long way to supporting your retirement when you ultimately sell. (This assumes, of course, your income goes up enough over time to swing the monthly mortgage on each new purchase. Don’t overextend, or you risk losing your valuable asset.)
Real estate is often one of the first significant steps people make toward building their wealth, and that makes sense. While living in your home, it’s actively appreciating and increasing your equity, and if you choose to rent the property out, it can be a lucrative source of passive income. That being said, real estate is only a good investment if you’re financially prepared for it. When calculating your monthly expenses, make sure to look beyond your mortgage. Take into account property taxes, homeowners insurance, utilities, and homeowners’ association (HOA) fees, if applicable, and don’t forget to also set a little aside every month for all the unexpected expenses and maintenance issues that crop up when owning a home. When purchasing, you’ll also need a significant amount down, and you’ll need to cover miscellaneous fees, such as closing costs. If you’re not able to afford all this, you risk defaulting on your mortgage and losing your valuable asset.
With realistic expectations and proper planning, though, buying a home can easily be the wisest financial move you could make!
Are you ready to take the plunge into the real estate market? Stop throwing money away each month on rent, and reach out today to take your first step to financial wellness. Already own a home? Looking to upgrade? We’d love to hear from you! Whether this is your first house or your tenth, our passion is helping you find the perfect home.
