There are many paths you might take to achieve your goal of financial freedom. Investing in real estate is definitely one to consider because there are many financial advantages to the strategy. Let’s discuss the seven reasons property investment is the key to financial freedom.
You’re in Charge
You have complete control over your investment choices. It’s up to you when it comes:
● Which property to invest in
● Which tenants to rent to
● How much you’ll charge for rent
● How to manage the property
The capital gain is how much profit you’ll realize after selling the property. For instance, if you purchased the property for $130,000 and sold it a few years later for $160,000, then you realized a capital gain of $30,000.
The key to building in the best potential capital gains upon the resale is to purchase at a discounted price. Here are some reasons a property might sell at a discount:
● Cosmetic work is needed
● The owner needs to sell quickly due to a personal issue
● There are major foundation or roof issues to fix
● The bank has repossessed the property
There are many ways to find properties selling at a discount. One way is to join a local real estate investment group. Another way is to work with Buyers Agent Sunshine Coast .
Holding investment real estate comes with cash flow advantages. The idea is that it will provide you a monthly cash flow in order to put money in your pocket consistently. Cash flow is the amount of money you receive from a tenant’s rent minus expenses.
For example, let’s say you get $1,000 per month in rent from your tenant. The mortgage, taxes and insurance come to $800. This means you are cash flowing $200 per month.
The interesting thing about real estate is it provides more leverage opportunities than other types of investments. For example, let’s pretend you want to buy $200,000 worth of stock but you only have $40,000. Your banker isn’t going to give you the remaining $160,000 to buy that stock. However, your banker will give you that money if you’re buying a piece of real estate instead.
The reason is there is less inherent risk because the physical asset provides the bank protection in case you can’t pay the loan back.
Since real estate has this built in lower risk factor, it’s not very difficult to leverage your money when finding deals. You never need to cough up the entire amount of your purchase. Instead, you borrow the majority of what’s needed to complete the deal.
Equity is the amount your investment property is worth minus how much you still owe on your mortgage. For instance, you buy a rental home for $100,000. You bought it by putting 20% down ($20,000) and your loan is for $80,000. You fixed it up immediately and raised its value to $120,000. You now have equity of $40,000 ($120,000 minus $80,000).
The fantastic thing about this process is your tenant pays rent every month and is paying down your mortgage for you. Your equity amount increases every month that mortgage goes down. If you decide to sell the property down the line, you will net more money because the loan amount has grown smaller.
Real estate is an investment vehicle that has historically appreciated in value. This isn’t a guarantee, of course. You shouldn’t buy a property with an expectation of appreciation being the only way to profit from the deal. It’s a great benefit when your property does indeed appreciate over the years.
Expecting appreciation is not investing, though. It’s speculating. You should buy investment property based on other factors you can more easily control, like cash flow and equity.
Consult with a tax expert about this issue, but investing in real estate comes with many tax benefits. Many of your expenses can be written off at tax time. As well, depreciation is another benefit to talk through with your accountant.
As you can see, there are many reasons real estate is a good choice to help you reach your financial freedom goals.
About Author: Eric Reyes is a passionate thought leader having been featured in 50 distinguished online and offline platforms. His passion and knowledge in Finance and Business made him a sought after contributor providing valuable insights to his readers. You can find him reading a book and discussing current events in his spare time.