How to invest in today’s real estate market
Investment in real estate is not for everyone. If you are looking for a way to increase your personal wealth, purchasing a rental property is for you—especially in today’s real estate market, with outstanding low interest rates and a solid rental market. A well-chosen, well-managed rental property of one to four units can be the “shining star” in an investor’s portfolio. Experience shows that rental property investors can benefit from informed real estate professionals who can find the right location with the right financing. The key to success today is doing your homework and making sure the numbers work.
If you have bought your own home, you already know many of the advantages of real estate ownership. Here is a brief overview of the many ways you can profit from owning rental real estate.
LOWER YOUR TAXES
Investors’ tax incentives can be substantial. Some investors can use deductions from rental property to offset their wage income. Others can avoid owing taxes on their rental income by showing adequate expenses and deductions. Even when the gross rent does not cover the expenses, tax breaks may actually make up the difference — or more.
The investor can claim deductions for actual costs on: mortgage interests, real estate taxes, insurance, maintenance, repairs, property management fees, travel, advertising, utilities, etc. These costs can be subtracted from your adjusted gross income, when filing your income tax return, up to the amount of real estate income you receive.
Also, don’t forget deductions from depreciation. The tax code assumes buildings and improvements “wear out” over time. These “losses” are deductible from income, regardless of the property’s market value.
HAVE A POSITIVE CASH FLOW
A positive cash flow results when the rent you receive exceeds the total you pay for the mortgage, taxes, insurance, maintenance, and other carrying costs. You need to buy wisely, because not all investment properties yield high enough rental income to cover expenses. A positive cash flow will also depend on how large of a down payment you are putting down.
Of course, a positive cash flow is impossible without rental income. You will also want to ensure your tenants make timely rent payments and take care of the property. A thorough credit, employment, and landlord check on applicants will help you find renters. A strong lease combined with a required security deposit will help put you ahead.
As an investor, you magnify the return on your investment by borrowing a large part of the purchase price. That is, by limiting the amount of cash you invest, you make your cash go a long way. Leverage means using borrowed money to increase equity. And equity – the difference between what the property is worth and the balance owned on the mortgage – is what is important when deciding whether your dollars are invested wisely. For example: assume you bought a $100,000 rental property with 30% down payment. In a few years the property is worth $135,000. The $35,000 return on your $30,000 investment is more than 100% return. If you bought that same $100,000 property with all cash, the return on your investment would be 35%. Leverage puts other people’s money to work for you.
BENEFIT FROM GROWING EQUITY
Each mortgage principle payment you make is a payment to yourself. You build equity as your mortgage principle shrinks, even if your investment property doesn’t change in value. Although different properties appreciate differently from each other depending on a number of factors, the key is to shop carefully with the guidance of an experienced professional.
Right now we live in one of the most exciting times in Manitoba real estate. And, as you will quickly discover, it does not matter if you are a beginner investor, or a veteran, you will have the same opportunity to grab your share of this exiting market. I will be very eager to answer any of your questions about buying an investment property. Just call me at (204) 761-7444 or email.
$80,000.00 LEXUS FOR $4.00 A WEEK?
You know when you first read this you must think that my great great grandchildren will be paying for this beauty vehicle. Not true at all and here is my story.
One thing I always tell my clients and friends is real estate values in our market has always remained stable. So why not take advantage of the increasing values of my property and use some of my equity.
I found my dream car—a Lexus—and it was expensive, yes, so I thought how can I get creative when paying for this vehicle.
Here is the math:
$20,000 Cash Deposit
$9,000 Trade In
$54,000.00 home equity
All I did was stretch my one mortgage to 30 years and it increased my weekly payments by $4.00.
This story sounds so hard to imagine, but one can fully see how you can utilize the money in your properties and home. This is all possible my friends.
All the best to you and yours.