Investors are drawn to real estate for a variety of reasons; some of these include:
- An investment in real estate means owning a piece of real property, rather than some fraction of a stock or bond.
- Historically the cost of real estate has tended to increase over the long term, though there is no guarantee, and property values can go down.
- With a 30 year fixed rate loan the monthly cost of the home loan will remain constant throughout the loan term, but the rental prices the can be charged generally increase over time.
- An investor can increase the value of his or her property by working on it, building “sweat equity.”
Thinking about purchasing an investment property, but aren’t sure what type of real estate to look for? Here are a few options:
- Buy a future retirement home while still working and rent it out to offset the costs.
- Purchase a property in a favorite vacation destination and use it a few weeks a year but generate income by renting it the rest of the time.
- Opt for a duplex or multi family home and live in one unit while renting out the others. (This scenario may qualify for financing as a primary residence if one unit is owner occupied.)
- Find one or more small condos or town homes near a college or university and market them to students or visiting professors.
- When moving to a larger home keep the previous home and list it for rent rather than for sale.
- Purchase a distressed property, renovate it and offer it for sale at a higher price.
Remember that like any investment, investing in real estate carries risk. Always have a plan for how you will cover the costs associated with the property should it sit vacant and not bring in any income for some period of time. Be sure to talk to a tax professional about the tax implications of adding a real estate investment to your portfolio.