It is no secret that residential real estate investing is the ultimate investment to make money and secure passive income for many years down the line. Many investors choose the buy and hold real estate strategy for long-term financial gains and security. Unlike residential real estate investing, the stock market is full of volatility and high risk. Of course, the greater risk you take on, the greater the returns. This also applies in real estate, but nevertheless, investing in residential real estate is all in all a safe and tangible real estate investment strategy for the risk-averse investors out there.
Related: Are Homes for Sale Near Me a Good Idea for Real Estate Investing?
Whether you are retired or have just graduated from college, residential real estate investing has low barriers to entry and almost anyone can start investing for money in real estate. With the right education and resources, you can be on your way to building a real estate business with even little capital to start with. The trick is to immerse yourself in learning and acquiring the right knowledge to become your very own real estate expert. When you have deep rooted knowledge in real estate, you are more confident to identify positive cash flow properties in thriving residential real estate markets for capital gain.
8 Reasons Residential Real Estate Investing Is the Way to Go
1. Rental income
Traditional real estate investing and/or a short-term rental strategy is one of the best ways to make money. The best investment strategy in real estate is one with a continuous stream of positive cash flow. Investing in residential real estate is essentially investing your money for rental income. Buying rental property in prime locations can safeguard a reservoir of cash flow coming in every month and act as a financial buffer in the long term. To maximize your rental income and return on investment make sure that:
- You treat real estate as a business
- Select good neighborhoods for investing
- Run background checks on prospective tenants
- Keep the rental property in tip top shape
- Never delay renovations or repair, regardless of how small
- Hire a professional property manager if deemed necessary
2. Tax advantages
Another great perk of residential real estate investing is the tax advantages investors can claim for running their business and making money.
Tax benefits of residential real estate investing include:
- Interest: Real estate investors can write off interest payments associated with the mortgage loan on the rental property.
- Depreciation: Real estate investors can claim depreciation to mitigate financial losses.
- Repairs: Repairs on the house are also tax deductible. Another reason to incentivize you to invest in residential real estate right now!
- Travel: Travel expenses related to your real estate business count as expenses and in turn are tax deductible.
- Hiring employees: If you hire employees and/or contractors to run your real estate business, you can write it off!
- Insurance: Insurance costs are also written off.
- Professional or legal services: For example, hiring a professional property manager can be written off as a business expense.
3. Accumulation of equity over time
If you are financing your residential real estate property with a bank loan, the mortgage payments you make on the rental property allow you to build home equity over time. This means that you become the owner of the property and that gives you more leverage down the line. With the accumulation of home equity, real estate investors become eligible to finance more real estate properties and make money in turn. Win-win!
Residential real estate investing builds wealth and appreciation over the long run. An appreciating asset increases in value and worth and as a result, real estate investors can sell for much more than they originally paid on the real estate property. This is the reason why real estate is a great investment opportunity to build wealth and make money in the short term (rental income) as well as the long term (appreciation).
5. Financial leverage
Residential real estate investing gives real estate investors financial leverage. How, you might ask? Simply stated, leverage in real estate means how much money you borrow from a lender compared to the property’s worth over time. Essentially, real estate investors are leveraging the loan to maximize their return on investment. The more leverage you have, the higher your return on investment. With more leverage, real estate investors accumulate home equity and become eligible to buy more real estate investment properties with less. Leveraged real estate investing is at its peak when property values are rising; as the value of the real estate investment appreciates, monthly mortgage payments remain constant, creating higher return on investment.
Related: What Is Keeping Your Rental Income Down?
6. Real estate profits from inflation
There is a positive correlation between inflation and house prices; increasing money supply causes inflation and increases house prices in turn. With more money at hand, interest rates decrease, and more people can afford to buy real estate. An increase in demand for real estate causes the prices to go up in value. The law of supply and demand!
7. Residential real estate will always be in demand
As previously noted, residential real estate investing is an all around safe investment and one which will never go out of style. People will always need to rent and/or buy homes. Investing in residential real estate will always be a good idea, given it is in a good location. Make sure to keep the property in tip top shape in order to increase its value over time.
8. Residential real estate is a safe investment strategy
This goes without saying (given the number of times mentioned already), but nevertheless it is worth emphasizing one last time. Residential real estate investing is a tangible real estate investment strategy with long-term financial security and return on investment.
Related: How does the future of real estate investing look like?
Residential real estate investing is the ultimate real estate investment strategy if you are looking for securing wealth and financial security in the long term. Accumulating home equity and having the leverage to finance more real estate properties becomes a business with good return on investment. If you are just starting out, make sure to start small and find the right financial means and resources to get you started on the right path.
Head over to Mashvisor to find your next real estate investment property!