Real Estate Investing: The Personal and Financial Benefits
Despite the troubling headlines in the financial pages lately, today’s real estate market can be a very hospitable one for investors. High rates of foreclosures and homeowners selling under financial duress have led to rising home inventories. Combined with the recent decline in home prices in many areas, these factors have helped to create an environment of great profit potential for the savvy real estate investor.
A traditional form of real estate investment is to purchase a home and hold it until the value rises, then sell it for a profit. These days, with so many bargains homes on the market, the patient investor has the potential to realize a much larger profit margin should the property bought in today’s struggling economic climate be held until values rise to a more typical level (assuming the market you buy in has “over-corrected”). People always need a place to live no matter how the markets flow, and properties held in this manner can bring income as rentals until the time is right for selling.
Among the most popular routes to profit in real estate investment in recent years is home “flipping”, where investors buy a home, rehab it, and sell it for a profit. While this may be a bit more difficult in the current real estate market, an investor can realize a substantial profit margin with the many low cost homes available on the market today. While homes may move more slowly than at the height of the housing boom, again, housing is a commodity that is always needed, so patience can bring profit.
Another one of the many benefits of real estate investment lies in the tax advantages that can come with such ventures. Deductions for depreciation of your investment property can be quite lucrative. Since the IRS requires that investment properties be devalued on paper by a standard formula, depreciation can also reduce the amount of capital gains tax you will be obligated to pay when the property is resold at a profit.
There are also tax benefits for investors who are eligible to be designated as real estate professionals. To qualify for these tax advantages, one must spend at least 750 hours managing real estate investments per year, or more than half of total annual working hours. If you meet these requirements, your real estate investing venture can become eligible to claim a long list of business related income tax deductions.
Aside from profit and tax advantages, real estate investing offers more freedom than the typical nine to five job. Residual income from rental properties can offer much in the way of financial security and quality of life by allowing one to work fewer hours for as much income or even more than that steady office job offers.
As with any form of self-employment, hard work and self discipline are required for success. However, those willing to spend some time educating themselves in the basics of real estate investing can find a great deal of satisfaction in controlling their own destiny while enjoying the many benefits of investing in real estate.