Buying A Home For Investment
You always hear about people who made their fortunes investing in the stock market, and you also hear about investors who lost their shirts playing the same game. But you hardly ever hear about real estate investors who go bankrupt, and that’s because it doesn’t happen often.
Those individuals who invested wisely in real estate many years ago are living very comfortable lifestyles. Investing in real estate wisely can produce income and make your financial situation a lot more comfortable. If you are just getting started, or have considered investing in real estate, Pruitt Miller Realty Group would love to help you. Below are some of the benefits of investing in the real estate markets of Charlotte, Ballantyne and the Lake Norman areas.
Appreciation is the increase in value of a property. As a fairly general rule, homes appreciate about 5% per year. Some years will be more, some less. The figure will also vary from neighborhood to neighborhood, and region to region. Five percent may not seem like that much at first. Stocks can appreciate much more, and you could earn over six percent with the safest investment of all, treasury bonds. But take a second look.
Presumably, if you bought a $200,000 house, you did not pay cash for the home. You secured a mortgage, too. Suppose you put as much as 20% down – that would be an investment of $40,000. At an appreciation rate of 5% annually, a $200,000 home would increase in value $10,000 during the first year. That means you earned $10,000 with an investment of $40,000. Your annual “return on investment” would be a whopping 25%!
Leverage is the ability to borrow a percentage of the value of a piece of property. Real estate, in comparison to other investments, offers a very high degree of leverage. In some cases, a couple buying a single-family home can obtain 95% financing. This allows individuals to purchase real estate with little, if any, of their own money. What other investments offer such a high degree of leverage?
With leverage, or the use of other people’s money, comes a repayment schedule. Your outstanding balance is reduced with every payment you make. A portion of each payment goes to interest (applied first), and part of your payment goes to principal. The principal reduction is called amortization – reducing debt. Hence, amortization can make you wealthy — slowly and steadily.
Owning real estate with the goal of making profit allows you to deduct interest payments and other expenses at tax time. But don’t be fooled into buying real estate for the tax advantages; buy real estate because it makes economic sense to do so.
Investing in real estate is a great way to achieve your financial freedom. What could be more worthwhile than taking up real estate investing as either a full-time business or even a hobby? The benefits are definitely there.