Should you invest in real estate? Even with the housing market beginning to once again heat up, there’s still minimal guarantee that you will succeed in this venture. But, if you’re going to take the dive and invest in the Seattle housing market, now is the time to do it.
Let’s dial this back for a second and ask the question: “Why should I invest in real estate” What benefits come from taking on such a huge potential risk? What do I stand to gain from pouring money into properties? Let’s break this down, shall we.
First off , you gain more leverage. Real estate is one of the few investment opportunities where using a bank’s money couldn’t be easier. The ability to take out a loan, make a down payment, and leverage your capital into an overall positive return is still remarkable achievable.
Second, you have the potential for long term growth in your portfolio. Unlike the volatile environment of the stock market, the housing market rarely ever sees drastic fluctuations in a short term time span. What’s more is that there is the potential to use a tax deferred strategies such as a 1031 exchange (https://en.wikipedia.org/wiki/Internal_Revenue_Code_section_1031), a charitable trust (should you decide to go down that particular avenue), or an installment sale to help lessen your tax liability in the future. Not to mention that (depending on your classification as either an active investor or becoming a full fledged real estate professional) there is a good chance that you can use a rental property to not only give you a tax free cash flow (which I’m about to go into), but also an overage of tax deductions can be used against your other income. Depending, of course, upon what your actual overall income level is. As with any major investing decision, it’s always best to consult a tax professional before diving into this.
Third is that this opens up the avenue for a tax free cash flow. The reason for this is because both depreciation and mortgage interest deductions are tax deductible. Not to mention that rental properties afford investors an opportunity to convert personal expenses into a (potentially valid) tax deductible business expense. Think about it, rental real estate is a business. So, for example travel expenses to your properties and payments to individuals who manage your properties that normally would have come out of pocket is now tax deductible. In addition, this increases the tax benefits when it comes to cash flow and the future sale of the property (if you decide to purse it).
Fourth is, in all honesty, it’s a realistic retirement opportunity. Let’s be real, Americans are no longer known for their frugality and saving skills. A reputation that we have earned. IRA and 401k investments have also been on a down trend for some time; not to mention that bank interest rates have been abysmal for over a decade. However, buying a rental property is a massive commitment of not only money, but time. You’re not buying some unseen stock option or a mostly worthless CD. A property is a physical structure with continual needs to maintain. Which means that it’s a long term commitment; and thus, one that you’re going to continually invest money in.
Fifth, and this is Seattle region specific, there’s a huge demand for your product. Thus, there’s a current massive appreciation in the value in the properties you either sell or rent out. While you won’t, in any way shape or form, get rich overnight, this does open up an avenue for revenue that may one day surpass and eclipse your current income. The trend for this particular region is for continual annual growth for the foreseeable future. For example, due to escalating housing prices, renting in King County is on the rise – close to 40%.
Sixth is that it is an excellent hedge against inflation. With the cost of living on the steady climb, everything from a gallon of milk (or a gallon of gas) is consistently rising. With this is the escalation of rent and property values. But, if you have a fixed-rate mortgage payment, you’re locked into that amount. Which means the value continues to rise while your mortgage payment stays at the same rate (until you refinance, of course).
The last one is that, let’s be honest, unlike many of your other investment options, this is one that you actually have control over. You are in control over what neighborhoods you buy property in. You are in control (for the most part) who you sell and rent to. You are in control that, if rates fluctuate too much, you can sell (or invest further). There’s nothing stopping or penalizing you if you change your mind and back out.
In the end, the choice is yours.