Why putting your money into real estate will diversify your portfolio, provide predictable cash flow, and improve your financial situation.
Are you looking at homes for sale in Los Altos to invest in this year? As any experienced Los Altos realtor will tell you, real estate is an excellent investment in almost any type of economy, but it’s an especially good bet right now. With mortgage interest rates at record lows, investors can save hundreds of dollars on monthly payments and improve their financial situation.Ready to take the next step and invest in real estate in 2021? Here are eight reasons why it’s an excellent idea.
1. Real Estate Appreciates in Value
Knowing which types of investments appreciate and in what types of economies they appreciate is an important piece of knowledge for any investor. In general, types of investments that tend to appreciate are stock market index funds, cryptocurrencies, gold, government bonds, and, of course, real estate. While some of these options may only appreciate when the economy is favorable, real estate increases in value in almost any type of economy. In the past 50 years, real estate in the United States has appreciated by six percent per year. And that includes the economic downtown that started in 2007. When you purchase one of the homes for sale in Los Altos, you’ll be making a solid investment that will increase in value the longer you own it.2. You Can Leverage Real Estate
Every investor is familiar with the word leverage, or the use of borrowed money to increase the potential returns on investment. Leverage in real estate occurs when a mortgage is used to reduce the amount an investor has to come up with to purchase a property. After you have built up equity in your property by paying down the mortgage, you can then leverage that for cash by securing a second mortgage or refinancing the original loan plus the increased equity. When you free up cash, you can then work with a Los Altos realtor to buy another piece of property and build even more equity that you can leverage for cash.3. You Can Deduct Real Estate on Your Taxes
Smart investors always keep taxes in mind when they make investment decisions. There are a number of smart investments you can make that allow you to postpone taxes or reduce the amount you will owe on the investment. Options include Roth IRAs, 529 college savings plans, and traditional IRAs. When you invest in real estate, you not only won’t owe more in taxes for your investment, but you’ll actually get to make extra deductions. The tax code lets you make various deductions when you buy homes for sale in Los Altos. You can deduct property upkeep, improvement, maintenance, and the interest you pay on your mortgage. These deductions help you offset what you pay in taxes each year and increases the value of your investment.
4. You Build Equity with Real Estate
Equity is the amount of a piece of property you own after taking debt into consideration. To calculate equity, you simply subtract the balance of your loan from the value of the property. Your Los Altos realtor will tell you that the more equity you have in a home or other piece of property, the more options you’ll have.Most real estate is purchased with a small down payment, and the bulk is financed with a mortgage. As you pay down the mortgage balance, the principal owed on the loan is also paid down. This happens slowly at first since most of the monthly payment will go toward the principal, but it will start happening faster as time progresses and the loan approaches the end of the amortization period. As the principal shrinks, you build equity that you can then leverage for cash to make more investments.
5. Real Estate is a Tangible Asset
Unlike investments in IRAs or stocks, real estate is a tangible investment in a physical asset. The value of tangible assets is that they will always have some type of monetary value, even if that value decreases due to the economy or other circumstances. Investments such as stocks can lose their value entirely if the market crashes, but real estate will never completely lose its value unless it is destroyed (and, in those circumstances, you have insurance to protect you). Even if your investment decreases in value (which real estate has not done in the past 50 years, as noted above), you can simply hang on to it until the market or economy improves and it recovers its value.6. You Can Improve on Your Investment
When you buy one of the homes for sale in Los Altos, you don’t simply have to be happy with what you purchase. One of the best things about investing in real estate is that you can always improve your investment. Your Los Altos realtor can help you decide which improvements will give you the best return on investment so you can increase the value of your property and the price you can eventually sell or rent it for. The best projects for increased ROI tend to be kitchen remodels, deck additions, and bathroom additions. The ability to improve the property makes investing in real estate a favorite for those who enjoy getting physically involved with their investment.
7. Real Estate Helps You Diversify Your Portfolio
Serious investors are familiar with diversification, or the strategy that mixes different types of investments within one portfolio. The purpose of investment diversification is to mix different asset types and vehicles to limit exposure to one single type of risk. If you’re investing in a variety of risky opportunities like stocks or oil, buying homes for sale in Los Altos is a way of lowering some of your risk. If the market where you’ve invested heavily takes a dive, you won’t lose everything because you’ll still have the tangible asset of your property.8. Real Estate Has Predictable Cash Flow
Cash flow is the net amount of money you have available to use for other purposes. While it’s difficult to predict the kind of cash flow you’ll receive from other investments, real estate has relatively predictable cash flow. If you are renting the property, you know that as long as you have a tenant who’s paying full rent, you can count on a certain amount of money coming in each month.Ready to take advantage of all these reasons why real estate makes an excellent investment? Work with an experienced Los Altos realtor like Gretchen Swall to find the right type of property for your portfolio.
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