There are many benefits to owning a home, and homeowners are very well aware of them. Buying a home is a great investment for many reasons. Real estate almost always appreciates, it helps build your credit, and it gives you the opportunity to build equity. These are also reasons why people choose to invest in real estate.
On the other hand, a lot of maintenance goes into owning a home, and homes aren’t cheap. They come with very high upfront costs with the average cost of a home in the U.S. being around $375,000. With all of these responsibilities, why would people want to invest in another home or property? Well, here are four reasons why.
4 Reasons to Purchase Real Estate Property
#1: Different Types to Choose From
Investing in real estate doesn’t necessarily mean that you have to invest in physical properties. As mentioned above, raw land is considered real estate, and you can purchase and hold on to a piece of land. You can also invest in REITs (real estate investment trusts) which are companies that own physical properties. When you buy a REIT, you buy into ownership of these properties and earn regular dividend payments from them.
Another common way to invest in real estate is by flipping houses. This is when you purchase a house at a discounted price, renovate it, and put it back on the market to sell for a higher price. The only downside to this option is that your flipped house isn’t guaranteed to sell for a higher price— or even at all.
Investing in commercial real estate is also an option. It’s more expensive than residential real estate, but you have the potential to make more money from commercial properties, such as hotels, shopping centers, office buildings, and warehouses by charging rent to business owners who need to rent a space on the property.
#2: Earn Passive Income
Passive income is income that you don’t have to work for. Owning a rental property (whether residential or commercial) will allow you to earn passive income. That is, as long as you have trustworthy tenants paying their rent each month. The rent that you earn each month off of your property is your passive income.
Just keep in mind that being a property manager doesn’t mean you’re completely free from working— especially if you own multiple properties. You still have to perform basic landlord duties and market yourself as a reputable landlord to rent from so that you’ll continue to gain tenants. The good news is that you can hire a property manager to do this for you. Just understand that this is an extra cost on your part.
#3: Tax Benefits
Owning real estate also comes with many tax advantages. It takes a lot to maintain a home, and examples of some of the things you can deduct on your taxes include:
Property management fees
If you ever sell any of your properties for more than what you paid, the profits you make won’t get taxed as income, but as capital gains.
#4: Own Your Dream Vacation Home
When you invest in a rental property, it doesn’t mean that you have to rent it out to tenants— especially if it’s a beach house, a cabin on the lake, or another scenic location. Many people own vacation homes, and when you buy another residential property, you’ll own a vacation home too. You can even design your own contemporary cottage by the lake to enjoy.
Many real estate investors will also purchase these vacation homes to rent (as vacation rentals) to tenants and then use it for themselves when they’re not renting to tenants. This gives you the best of both worlds: the ability to make money from your rental property and the ability to enjoy your rental property yourself.
So there are many reasons to invest in other real estate properties in addition to your home. However, you should keep in mind that this is still an investment, and that means that there is some risk involved. So it’s important to do your own research before investing in any type of real estate— and even before buying (or building) a vacation home.
Still, real estate is one of the more stable investments, compared to stocks, bonds, and mutual funds. When owning multiple properties, you also have the option of renting to tenants to earn back some of your money sooner.
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