In today’s market, owning real estate is a great way to invest in your future. There are an untold number of perks to owning property, but what are the three financial benefits of owning real estate? No matter the type of property, three of the biggest benefits of owning real estate are tax breaks, passive income, and diversification of assets. Homeowners can make huge sums of profit when selling a home after holding it for several years. People make a living off buying and selling real estate. These advantages will help you achieve financial stability and security by increasing your income and saving you money during tax season.
Today, we will discuss the 3 impactful financial benefits of owning real estate that can help increase your total net worth.
Tax Breaks
Those who choose to invest in real estate can expect a multitude of deductions and tax breaks, many of which can be capitalized upon for decades. Real estate owners are able to deduct all of their expenses that relate to the maintenance, management, and operation of their property, if done correctly this can save boatloads of money each year.
Some of the most common tax deductions that real estate investors can claim include:
- Maintenance costs for repairing and maintaining the property
- Property tax
- Property insurance
- Property management fees
- Mortgage interest
- Depreciation
- Operating expenses
Keep meticulous records of your deductions and expenses, should the IRS choose to audit you. Having an organized file for your rental income, rental expenses, receipts for repairs, and previous tax returns can be very helpful when it comes time to file your taxes for the previous year.
Passive Income
Passive income refers to the ability of a property owner to generate revenue without constant and active involvement. By renting your property out to a tenant, you can sit back and collect a check every month while leaving the majority of your time free to earn additional income. There are only so many hours in the day, so why not maximize your cash flow while minimizing the number of hours you work each week? Passive income means you accrue extra capital while sleeping, working at your day job, and even traveling.
Property upkeep, interacting with tenants, and managing leases aren’t without their fair share of work, but they are well worth it when it comes to the income you can generate versus the time you put into them. Managing real estate isn’t for everyone though and some people prefer to sell their rental property instead of keeping it long-term. What if your tenants were hoarders and left the property in shambles? Selling a property as-is and being done with it is an option. The trick to selling a hoarder house is to find the right buyer for the job. Ideally, you are working with a realtor that is well-connected to investors, developers, and house flippers. Those types of buyers are typically more interested in as-is home purchases.
Diversification
Investing in real estate is a great way to diversify one’s portfolio while reducing that portfolio’s volatility and increasing the return in relation to its risk. Real estate doesn’t usually correlate with the growth or depreciation of other major assets, meaning that it can be a safe investment when other areas of the market take a turn for the worse. Unforeseen trends in the market happen regularly, so the best way to protect your portfolio is to diversify your assets and investments, ensuring that you will have enough capital on hand in the event of a recession or crash.
Are There Cons to Owning Real Estate?
There’s a flip side to almost every coin in life. Real estate isn’t immune to imperfections or issues that can negatively affect you, your financial position, or your assets. As much as we wish that owning real estate was exactly how it’s portrayed on HGTV, it’s sadly not. For landlords, you may have dealt with things like vacancies, bad tenants, or squatters. All of these typically cost you money in either holding costs, damages, or lost rent.
It’s important to have a strong understanding of what you’re getting into as a property owner. Reading a thorough guide on squatter’s rights in your city will help you stay on top of laws and regulations to follow when dealing with difficult situations. Unfortunately, many bad tenants and squatters understand how to work the system and inhabit your property without paying rent for long periods of time. Make sure you have a firm grasp of the real estate laws in your area when preparing to purchase a property.
Conclusion
There’s a reason that investing in real estate is such a popular way to earn extra income. It opens the door for earning a passive income, capitalizing on special tax breaks and deductions, and diversifying your portfolio in order to ensure financial security for years to come.
Guest Author:
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Tanya Hanson
