Buying a home, an apartment building or land is one of the biggest investment decisions you’re likely to ever make. Perhaps you’re buying property intending to rent it out to worthwhile tenants for home living, or you’ve decided that buying land in an up-and-coming urban area is a worthwhile way to diversify your investment portfolio. However, knowing when it’s the right time to enter the real estate market is tricky – and understanding how this market can benefit you as an investor in the long term can be somewhat difficult. Because real estate investments often require large up-front amounts of capital, grasping the important concepts of real estate value as an investment is quintessential for your success as an investor.
Q4 2019 hedge fund letters, conferences and more
A decade ago, no one talked about tail risk hedge funds, which were a minuscule niche of the market. However, today many large investors, including pension funds and other institutions, have mandates that require the inclusion of tail risk protection. In a recent interview with ValueWalk, Kris Sidial of tail risk fund Ambrus Group, a Read More
The Best Reasons To Invest In Real Estate Market
That’s why you’ll find five of the best reasons to invest in the real estate market and why these factors are especially relevant this year here.
1. Predictable Income Stream
Perhaps you’ve already invested in stocks that return dividends every quarter or every year. These dividends can vary depending on the value of the stock, so you might not know exactly what you’re getting each time those dividends are deposited. But if you’re investing in a property that can be rented out to tenants on half-year or year-long leases, you can directly determine the price those tenants are paying in rent. By locking in rent prices, you’ll be getting a predictable income stream every month from these tenants.
“However, like any investment there are risks.” According to Roy Dekel, avid investor and CEO of Real Estate Software company SetSchedule, “Nothing is a sure thing, renting to a solid tenant with a strong financial record, and a clearly defined leasing agreement will help you actively foresee with some accuracy what financial income you will produce for the term of the agreement, but do your homework. It is paramount to understand the market and do your due diligence to the extent possible when buying a property, pricing a property or when leasing to a renter. That research is a necessity to be able to predict income and mitigate the risk of a vacant investment property or costly eviction.“
While you may have some unpredictable costs for maintenance and upkeep, these costs are generally within a range small enough to be predictable in the grand scheme of your investment portfolio. This year is a great year to set rent prices, as markets predict that rental prices are likely to climb year-over-year significantly over the upcoming years.
2. Buyer Power
When you’re investing in the stock market, you generally have to pay a per-trade fee no matter how small or large the trade is. You may think that this is true in the real estate market as well - but surprisingly, in many places that is not the case for buyers. In most states in the U.S., it’s actually the property seller who pays real estate broker commissions (unless other agreements have been made). This means that you’ll be able to utilize the broker’s expertise without having to foot the bill, which can be a huge boon when purchasing larger properties.
3. Intelligent Tax Deduction
Once you’ve purchased a property, you’ll realize that there are many underlying costs associated with ownership. From mortgages to property taxes, these fees can add up. Fortunately, the United States tax system has quite a few deductions and breaks you can utilize. If you’re a landlord, you can deduct fees paid to attorneys, property managers, and other associated professionals as long as the work paid for was related to your rental properties. If you’re a homeowner, you can deduct interest accrued on your mortgage for debt on costs up to $750,000 (if married and filing together).
Some financial experts, like Selena Maranjian, believe this is one of the most efficient ways to reduce your taxes due to recent changes in tax law, making it a great reason to invest in a home this year.
4. Lower Real Estate Market Prices in Select Areas
If you know where to look for real estate, you’ll find that median home value prices have fallen slightly since 2017. However, in those same areas, median rent prices have increased. This signifies higher demand for rental properties and lower demand for long-term housing, a trend that’s likely due to the inability of transplants to purchase houses in the area.
For you, this means that there are opportunities to purchase houses that can easily be turned into rental properties at higher than expected return rates. If you are looking to move into a house, this is still a great opportunity as that trend signals more people are moving into the area.
5. Stable Trends in Mortgage Rates
The American housing market is currently experiencing mortgage rates below 4%, and that trend is expected to continue throughout 2020. According to experts like Skylar Olsen, this is likely to benefit both renters and buyers. With low-interest rates, there is a less long-term expense associated with purchasing houses or building kit homes - and combined with many younger individuals unable to front the down payment fees, this means that you may be able to lock down a mortgage with low-interest rates with little effort.
Every investment opportunity requires extensive research, and the real estate market is no different. But with the five reasons listed above, along with the help of professionals in the real estate space as you pursue asset options, you’ll be able to understand the power of real estate as a long-term investment.