One of my greatest loves is showing individuals with an investment mindset what putting their money in real estate can do for them and their future. I love seeing their eyes widen as I explain the potential ROI and possibility for early retirement. Young people may have been given the short end of the stick in terms of student debt and few job opportunities, but we also have the potential to work with what we have, and what we have is a booming housing market. In this article, I will explain some of the main benefits associated with investing in real estate.
Owning non-owner-occupied real estate means you have the opportunity to write-off expenses such as operating expenses, necessary repairs, depreciation, etc., as these are all expenses associated with keeping the property in liveable condition. If you decide to start your own business by opening an LLC or other entity, you can usually write off other seemingly non-real estate-related expenses such as your mileage driving to and from your property, a portion of your living expenses if you work out of your home, and sometimes even your internet and phone bill. You will want to keep good records of all of your expenses throughout the year, so you don’t have to scramble come tax season.
If you are interested in selling your property to buy another one down the line, you can avoid “cashing out” and paying capital gains taxes by using a 1031 Exchange. The properties have to be “like-kind” in the eyes of the IRS, but if done right, there is no limit on the number of times you can use this strategy. If you decide to use this strategy, it is always a smart idea to consult with an attorney as there are timing restrictions that you need to know about.
Buying an investment property in an appreciating area is a great way to build equity. Many investors opt to use a BRRRR strategy which stands for Buy, Rehab, Rent, Refinance, Repeat. If appreciation is high enough, this strategy allows you to build your portfolio by buying multiple properties year after year. A recent client of mine purchased a duplex in the Driving Park area a year and a half ago, rehabbed both units, rented them out, and cashed out $40,000 this year after refinancing. She will now be using this cash as the down payment on her next property. She is an out-of-state buyer, so she relied on me to show her areas in Columbus that were currently appreciating so she could make a smart decision when it came to buying her first property.
Unlike investing in stocks, bonds, and even the newest fad, cryptocurrency, the potential income you can generate from real estate is predictable. My husband LOVES investing in cryptocurrency and has become very good at predicting breakouts so he can buy and sell at the right time. However, there have been days where he missed out on an opportunity or forgot to sell in time, and he lost money. With real estate, if you do your due diligence and use a realtor who understands how to run numbers, you can easily predict the passive income you can bring in every month from a rental or the cash you will walk away with if you choose to flip a house. For rentals, before buying a property, you should already have an idea of the expenses that will be associated with managing the property (either managing it yourself or hiring a property management company), what a potential tenant will pay in rent, and, if necessary, the upfront costs associated with getting the property rent ready. If you want to flip a house, you need to know your rehab costs and your ARV (after repair value) and factor in unexpected expenses so you know what you will walk away with once it sells. A quality real estate agent will help you determine these numbers, but you need to put in the work as well. Finding accurate numbers will make your ROI that much more predictable.
Use A Investor-Friendly Realtor
If you live in an area with a considerable amount of growth (*cough* Columbus *cough*), there is ample opportunity to invest in single or multi-family homes, bring in passive monthly income and build equity, but you need someone who is experienced in investing leading the way. Watching youtube videos, reading books, and talking to experienced investors will help give you some information, but if you want to make a smart decision when you are ready to buy, it is always best to use a realtor who will be working in your best interest (I learned this the hard way years before I was a licensed real estate agent myself). If you are buying a property on the MLS, the seller pays the realtor’s commission so it is a no-brainer. If you are purchasing a property off-market, the buyer may need to pay a realtor a fee, but off-market properties can be risky, and it is always a good idea to have a realtor help walk you through the process, so you don’t make a costly mistake. I have seen people buy properties with cash without doing a title search and end up burdened with liens that cost more than the home is worth. Don’t let that happen to you.
If you are interested in starting your investment journey, please reach out! I can help you decide which strategy is right for you (flips, long-term rentals, short-term rentals, BRRRR, etc.). And will work diligently to ensure you make the right decision when it comes to buying your first investment property.