Throughout this resource, we’ll be talking a lot about the How To’s of real estate investment, but first we want to talk about the Why’s of property ownership. There are many benefits to being a property owner. Some might be obvious to you, others might not. Take a look at the list below before continuing to the next chapter.
Benefits of Owning Real Estate
Tax Write Off – You can write off the interest paid on your mortgage payment and the property taxes. At the beginning of an amortized loan, you will primarily be paying interest which can help offset some of the other initial costs of ownership.
Equity – Equity is the difference between the value of the home and the amount owned on it. If your home is worth $500,000 and there is $400,000 in debt (money owed on your loan), you have built $100,000 in equity. In most cases, the higher down payment you put on a home, the more beginning equity you have. Actual equity can fluctuate if the value of your home appreciates or depreciates.
Appreciation is the gain in your home’s worth over time due to natural market forces. Some examples of natural market forces include inflation, supply and demand, and rise in value of an entire area.
Borrowing Power – When you own a home and have built equity, you can borrow money against the equity in your own home with a home equity line of credit. A home is considered your greatest appreciable asset and in most cases you will receive the lowest interest rate borrowing against your home than say, your car which depreciates in value.
1031 exchanges allow real estate owners to exchange property and defer payment of capital gains taxes until a later date. 1031 exchanges are only allowed on similar type properties, meaning, you couldn’t upgrade your home to a commercial investment property.
Home Improvements – When you own a home, versus rent, you can do anything you want to the home, as long as you obtain the proper permits and follow local zoning and ordinances. These types of improvements can add new opportunities for cash flow and increase the value of your investment.
Selling Power – If you can get into a money crunch and have built equity in the property, you can either borrow against your equity as we mentioned above, or sell it. If possible, it’s usually better to borrow against your property’s equity.
As you’re already aware of because you’re reading this resource, there are many benefits to real estate ownership. Now let’s continue onward and learn more about the processes involved with real estate investment.