Real estate over the long term is a good investment if it's done wisely.
There are four main benefits to investing in rental real estate: cash flow, principal reduction, depreciation and appreciation.
The first benefit is the potential cash flow of a property. This is the difference between your income and expenses. Cash flow can also be negative. A smart idea is to put your positive cash flow aside and don't spend it. Use it for future repairs and maintenance that come up.
Another benefit is the principal reduction of your mortgage. Assuming you have a principal and interest loan, as compared to a interest only, a small amount of your outstanding principal balance is paid down each month. The principal reduction gets larger each month and as you get closer to the end of the length of the loan.
Depreciation is a tax deduction for the wear and tear on the property that you can take annually. Currently you can depreciate a residential property for a 27.5 time period. After that period you can no longer depreciate the property.
The final benefit is the appreciation of the property itself. Different areas have different appreciation and deprectiation rates every year. Over the years real estate has appreciated.
There are risks and hard work that is associated with investment real estate. This is not a get rich quick plan that is sometimes shown on late night TV, but a solid long term investment.
|
