It’s natural to get excited once you start earning money. It’s tempting to want to buy things like clothes and gadgets. You may even want to treat yourself to a vacation or buy yourself another car. And with all that extra money, you might want to dabble in stocks. However, before you start spending all your money, you may want to think about what these purchases will mean to you in the future.
First of all, an additional car may be unnecessary. You may also want to consider the fact that cars depreciate. Rather than spending your hard-earned money on things that don’t go towards your future, you should invest in real estate which rather than depreciates, appreciates in value. Here’s why:
You Are in Control
Whether you are investing in real estate by buying a home for you to live in now or you’re purchasing a house that you will rent out, you are still adding to your assets. Owning property protects you from worst-case scenarios when your other investments such as stocks plunge due to the unpredictability of the markets.
Because when you are in the sharemarket, you’re never in control. There will always be uncertainty as you watch market conditions fluctuate. When you own property, on the other hand, you are in control. If you want influence asset worth, you have the power to add value by making cosmetic renovations. And if you are renting out the property and want to increase cash flow, you can raise the rent.
Diversify Your Portfolio
Every financial planner will tell you how important it is to diversify. You never want to put all your eggs in one basket. When you diversify your portfolio, you’re distributing the risk. If your other investments fail such as shares, you can have peace of mind that your property will serve as a tangible asset.
Increased Tax Deduction
If you were to turn the property you invest in into a rental property; you could possibly convert personal expenses into business deductions. When you own property, you’re simply a property owner. However, the moment you rent out the property, you become an entrepreneur who is using your house for business. That means enjoying the tax benefits that come with owning a business. Certain expenses such as travel expenses and other operational fees can be deductible. According to the IRS, you can deduct ordinary and necessary expenses for managing, conserving, and maintaining your rental property.
Subsidize Your Investment
One of the best things about investing in property that you rent out is that others pay for your investment. How? When you invest in real estate, you only need to cover the down payment. Once you start renting out the property, the rent your tenants pay will go to mortgage payments.
If you invested more money to renovate the property, you might even be able to charge rent higher than the median. Essentially, you will be turning a profit. Not only will you enjoy a return on investment sooner, but ultimately, you still own a piece of property that has probably dramatically increased in value by the time the last mortgage payment has been made.
If you’re looking to buy or sell in Southern CA, let’s talk.