As a buyer’s agent I get to help clients find the “perfect” house. That house could be for my buyer to live in, or it could be an investment property providing future security. I have two daughters, both still in elementary school, but before I know it they’ll be headed to college. The cost of college (now and another 10 years from now) is a bit daunting. A 529 plan is great way to start saving, but I’ve also put my money in real estate (forced savings) and encourage you to consider doing the same. Interest rates are still low (even at investor rates) and in the right neighborhoods investment properties make sense.
Take a look at some of these advantages of investing in rental real estate:
- Leverage: Invest a small amount of money (the down payment) and control an asset worth much more.
- Forced savings: Each mortgage payment reduces what’s owed on the loan and increases the owner’s equity.
- Tax benefits: Taxes, loan interest, repairs, improvements, and depreciation can all be eligible as write-offs.
- Inflation hedge: Historically, housing value has increased at the rate of inflation or more.
- Potential appreciation: There’s no guarantee, but buying a property in the right location can increase the chances of profit.
- Psychological security: You own and control the asset and make the important decisions. With mutual funds and other investments, you’re at the mercy of managers and hidden fees.
- Tenant rent: Tenant rent pays the loan principal, interest, taxes, insurance, expenses, and increases your equity each month. With a 15-year loan term made at the correct time, that rent could pay off the real estate debt as your child is entering college.
Buying an investment property is different from buying your own home. It is a business decision, based on numbers, and not so much on emotion. I want to help my clients succeed and plan for their future. Let’s talk and see if we can make your money work harder for you. Let someone else pay the mortgage and build your equity. Be prepared for college down the road!