Points to remember before investing in real estate

Studies show that real estate investing returns an average 10 percent a year equal to the historic return for stocks.

Leveraged investing:

Major advantage of real estate investment is that you can use other’s person’s money like a mortgage lender and renter to make money for yourself. Rental income covers annual mortgage, insurance, property-tax and maintenance costs.

Tangible asset:

Real estate is considered a tangible asset, unlike stocks which is a paper stock certificate. The steadily rising cost of constructing new homes protects and ultimately enhances the value of existing properties.

Direct control:

Real estate investors have direct control over their investments. They decide the rent, choose tenants and decide on improvements to be made in the house. Real estate investors manage their own assets based on local market conditions.

Limited risk:

Since long term investors want wealth for their retirement years face little downside risk with real estate. Due to increase in population, shrinking household sizes and high divorce rates are expected to fuel increasing demand for places to live for decades to come.

The benefit of inflation

Due to increase in mortgage rates, it has affected home sales and property values. Rising rates have a positive impact on owners of investment properties. You will be surprised to hear that this year there are fewer people buying homes and rise in renters, which heightens demand for rental properties. Since real estate investment tends to slow as mortgage rates rise, it means there is a tight supply of rental homes in the near term. Interest rate hikes are the Federal Reserve Bank’s means to curtail inflation by making borrowing money more expensive. Inflation benefits real estate investors who can raise rents accordingly.

Tax-deferred gains:

Real estate investing provides the same type of tax-deferred advantage of 401(k)s and IRAs. In America, owners aren’t taxed even when there is an appreciation in a home value until the time of sale and after that even they don’t have to pay tax because they can roll their gain into another property. The ability under present tax laws for owners of rental properties to move into the home for a total of two years in any five year period and pay no tax on upto $500,000 in capital gains.

Illiquid investment:

Unlike stocks which can be sold by pressing a button on the keyboard, selling a home make take months and even years and entails considerable costs. If you’re not prepared to tie up your money for years to come, best that you don’t.

Cash-flow constraints:

It would be better if you buy properties whose rental income covers monthly carrying costs i.e. mortgage and insurance payments, property taxes and maintenance costs. New investors are in negative cash-flow situation, meaning the rent doesn’t cover their costs.

Sporadic income and unforeseen costs:

Rental property owners risk is being squeezed on several unforeseeable fronts. The first is tenants who fail to pay their rent in timely manner or not at all leaving it to the owner to cover their mortgage payments, out-of-pocket until they collect the back rent or evict a deadbeat. Major repairs have to be done – such as a new roof, furnace or septic system that can cost well into the thousands of dollars that must be ponied up on the spot.

Jeff Adams is an author for Real Estate Investing Information. He has written articles Real Estate Investments. For information visit our site Real Estate Investment Marketing