Decade after decade, real estate has proven to be a solid investment. A rental property can generate cash flow in addition to building equity. Owning investment properties also may offer certain tax advantages.
Here are some issues to consider when you’re thinking about investing in real estate:
- Type: Do you want a duplex, triplex or quad that you can live in yourself while renting other units? Or do you want to buy a condo, townhouse or single-family home? Do you plan to rent the property out year-round, or use it as a vacation rental? If the latter, will you also use the property yourself?
- Location: You’ll pay a premium for a property in a more desirable neighborhood or a vacation hot spot, but you may command a higher rental price.
- Repairs: If the house needs work, consider whether you’ll earn your investment back. Updates to kitchens, bathrooms, HVAC systems and roofs can all be costly.
- Maintenance: Maintaining the property helps protect your investment. If you don’t live nearby, you’ll need to contract with someone to keep the house in good shape.
- Local landlord/tenant laws: You’ll need to do some research on local regulations, particularly on rent control or other laws that could affect your ability to cover your mortgage payment, property taxes and expenses.
- Tax implications*: You can deduct operating expenses that exceed the amount of rent you collect on an investment property, and you can depreciate an investment property. You can deduct losses on the sale of an investment property, but you must pay capital gains tax on profits. The implications may change if you live in the home.
* Consult your tax advisor
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