As we go about all the activities related to investing in real estate, sometimes it’s easy to forget the reasons we’re doing it in the first place. Between purchase research, financial analysis, management and profitable sale, we should remember the very sound reasons why real estate investment outperforms most other investment vehicles.
Cash flow from rental income – Many a lavish retirement lifestyle is financed by the income from rental properties. There is less risk than the stock market, and even slowdowns in home resale markets do not necessarily bring about negative consequences for rental units. In fact, if people are having difficulty in getting mortgages, they will be renters for the near to long term. Recent problems in the mortgage markets have created many very reliable renters.
Appreciation in value – Though there are periods of flat or negative home price trends, the last 20 years show a universal up-trending of home values. Slowdowns or down-trends, far from a problem for investors, create buying opportunities. Recent mortgage industry woes, with accompanying foreclosures, have provided amazing opportunities to purchase livable homes at deep discounts, and in neighborhoods desired by renters.
Owner improvements for value – You can purchase a property with potential for remodel or improvement, do the work, and realize value appreciation. Buying the smallest home in a neighborhood and adding a room can provide a positive value over the cost of the addition. Adding garage space or remodeling kitchens have been activities investors have used to add value to their properties as well.
Inflation is usually your friend – While your mortgage remains fixed, inflation can allow you to increase rents, thus improving your return on investment…and that retirement lifestyle. Inflation, while damaging to the stock or bond investor, can increase the value of a property due to increased costs to build, as well as help the investor to raise rents for greater cash flow.
Paying down the mortgage – As the principal balance is paid down, your equity can become a resource for more investment capital. Properly utilized, this leverage can bring about great rewards.
Oh yes…and you might just make a great deal at buy and sell – The astute investor does the research and preparation necessary to buy and sell for profit. Many an investor will say that their profit is realized at the purchase closing table.
So, when you’re in the heat of the negotiation, or dealing with a rental property maintenance problem, just think of all these reasons why it’s the very best thing you can be doing to assure your financial future.