If you choose your property carefully, there is a potential value increase in
the future. It is similar to getting a dividend on your tock in addition to an
increased stock price. Real estate investment is also a god option for your
retirement age. If you plan well in advance, your rental income will keep
providing a steady stream of income when you retire. Wouldn’t it be nice to not
have to worry about a steady income when you retire from work so you can relax
and focus on your hobbies instead? You could also use real estate investments
for your children’s’ education, especially if they are still young. You can rent
out the property, keep the cash flow and later sell it in order to fund your
children’s’ education when they are ready to go to college.
In order to fully comprehend this scenario, you would have to think long term
and not in the present. To put it a bit differently, when you invest in a real
estate property, your renters are paying for it and over time you will fully own
the property with no mortgage. You can even hand down these properties to your
children. You have to become a visionary for your life and then execute that
golden vision. Real estate investments provide fruits of your labor in the long
run so if you are about ten to fifteen years from retirement age, then is the
best time to think about real estate investments.
There are tax advantages of owning real estate investment properties. In
summary, unlike a stock dividend or the interest you receive from the bank
(which is fully taxable in the year you receive it), real estate income
generally gets offset by “depreciation” you take on the property. Furthermore,
if in the future you sell the property, you can do a “like-exchange” and in
theory maintain the original cost basis of your property forever. Wouldn’t it be
nice if such an option was available when you buy and sell stocks?
Things to watch out for
You might be thinking, well all this is great but what is the downside
associated with real estate investment? And why is everyone not jumping into it?
Well, for one, investing in real estate is not easy. It requires discipline and
work. If you are used to trading stocks and mutual funds while comfortably
sitting in your chair, you are in for a surprise with real estate investment. It
is not as simple as a few mouse clicks. It is also not as simple as researching
on your favorite real estate website. It requires more work than that. Even
after you have acquired a property, there is work involved in renting and
managing it. Of course you could outsource most of the work but in that case, it
will cut into your cash flow. You need to run your real estate investments as
any other business. Although unlike other businesses even if you do most of work
yourself, you can do it in your free time and it takes much less effort. Some of
this work has become easier with internet, but real estate investing is not
going to be a cake walk.
Real estate property can and sometimes does lose value over a period of time.
Even though you are cash flow positive on a monthly basis, you may realize that
you overpaid for your property. This possibility is why it is important to take
your time, do your research thoroughly and purchase a property judiciously. Look
at the area, choose your property wisely, but it at the right price and rent it
while minimizing your costs.