This article was contributed by Steve Mitchell, president of Cape Fear REALTORS®.
It is well known that real estate can be an effective strategy for building wealth, as the asset over time, has the potential to appreciate as well as generate monthly cash flow. Aside from the benefit of diversifying your portfolio, investing in real estate can offer a much higher return in comparison to other investment products, as it allows you to use debt to finance the property. Furthermore, tax statues for the most part, are favorable towards the purchase and sale of real estate investments.
This is often referred to as the power of leveraging. There are many other benefits, such as having control over the investment and having the increased financial security provided by the inclusion of a hard asset in your portfolio.
Tax benefits set real estate apart from other investments. In many situations, it is possible to deduct the interest portion of the mortgage payment, plus expenses for repairs and maintenance. Also, the fact that real estate depreciates over time allows for another tax deduction. Also there is a possibility being able to sell the property for more than is invested in it, and using the proceeds to purchase a more expensive property, deferring the capital gains on the sold property through a like kind exchange known as a 1031 exchange.
There are several ways to invest in real estate. Within the context of residential real estate, it’s possible to generate income by purchasing a single-family home, condominium or townhome and then renting it out.
Those with an interest in commercial real estate could purchase a multifamily investment property such as an apartment complex, an office building, shopping center, hotel or warehouse. The investor can then choose to renovate the property and sell it, renovate, improve the rental income and refinance, using the improved property value pull some of the equity out, or rent the property in its current condition.
Regardless of which avenue you choose, you will want to begin building a team of trusted professionals and service providers, as the process can be extremely complex and highly nuanced. To ensure your interests are protected, it’s advisable to build a team with the following people:
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