This article explores 5 reasons why residential real estate is a good investment, whether you’re purchasing a primary residence or an income property. In particular, we’ll consider appreciation, tax advantages, credit opportunities, cash flow and leverage.
- Long run appreciation. While residential real estate markets are cyclical, real estate values generally increase in a given area over the long term if the population is increasing. This is because when population increases, the demand for real estate increases. And, since land is generally limited in a given area, supply can’t keep up, thereby causing values to rise. Depending on the market and the cycle, appreciation rates will vary over time, and at times values will even decline, but overall real estate values tend to appreciate when held long term.
- Tax advantages. There are tax benefits to owning or investing in residential real estate. You can deduct real estate taxes, qualifying mortgage interest and mortgage insurance payments. Plus, if you work out of your home, you may be entitled to further deductions. Check with your accountant for more information on your personal situation.
- Credit opportunities. As long as you have an acceptable income level and credit score, it’s relatively easy to secure financing on residential real estate and interest rates are relatively low. And, if you have equity in your real estate, that can open doors to other credit opportunities for you. For example, you may have the opportunity to qualify for a home equity line of credit, which can be used for repairs, education expenses or pop up emergencies like medical bills.
For those considering investing in an income property, cash flow and leverage are two additional advantages that real estate has over investments in financial vehicles:
- Cash Flow. Investment properties can generate regular cash flow via monthly lease payments made by tenants. While stocks, bonds and other investments can also generate cash flow – in the form of interest and dividend payments – the rate of cash inflow with residential real estate (i.e. rent payments) are typically more frequent.
- Leverage. Another benefit to investing in an income property (compared to purchasing stocks or bonds) is that the average person can use leverage (i.e. financing) to obtain a real estate asset. For example, if you are buying a $200,000 property to rent out, you may be able to purchase that property for as little as 20% down ($40,000). Of course, you will need to evaluate whether the property will create positive cash flow for you – you will want to make sure that the rental rate is more than the mortgage and any other expenses you will incur on the home (such as HOA fees, insurance, and landscaping fees.) Also, make sure to account for potential repairs and vacancies in your projections.
Looking for the perfect Scottsdale real estate investment opportunity? Whether you are looking for a primary residence, a vacation home or an income property, we’re here to help.
Realtor | Founder
The Matheson Team – RE/MAX Fine Properties
21000 N. Pima Rd., #100, Scottsdale, AZ 85255
[gravityform id=”1″ title=”false” description=”false”]