1. Easy to Get In and Work With
Start small: buy a single family residence or condo, or even a duplex. This should be a straightforward transaction for both the novice or experienced investor, very similar to buying your primary residence. The lending rules are virtually the same as for a primary residence, and the process is easy to understand.
Hands on or hands off: you can choose to manage the property yourself, or outsource to a professional Property Manager. Even though it impacts your cash flow, it’s probably best for the first-time investor to use a professional Property Manager. Once you get the hang of it, you can start taking some of the management responsibilities on yourself.
Larger apartment buildings, such as 5 units and up (know as “5+”) have different lending rules and property management requirements. These are a great way to leverage your investment, but they need quite a bit more experience, plus a higher tolerance for risk and problem solving ability.
2. Tax Benefits
Several factors can help your financial situation relative to income properties. The major tax benefits include:
- Mortgage Interest Deduction
- Property Tax Deduction
As with owning your own home, tax benefits can help turn an apparently unattractive situation into a positive one when managed appropriately.
*** We highly recommend that you consult your tax professional for complete and accurate tax and accounting information applicable to your situation.
3. Easy to Grow and Leverage Your Capital
Real estate investing is traditionally the best way to leverage your assets, time and involvement. Many smart investors start out with an investment single family residence, condo or duplex, then, after experiencing success with that type, continue to build on their success buying similar types of units. This creates a “money machine” effect, where you build on your strengths and experience by repeating past successes.
Other smart investors like to gain traction with smaller units, then work with larger properties, such as triplexes and fourplexes, utilizing the same techniques but leveraging their base investment even more with larger properties.
Here’s an example (*):
|Initial Investment (**)||$137,500||$178,750||$220,000||$275,000|
|(*) Assumes similar construction quality, condition & neighborhood|
|(**) Including 25% Down Payment, + 1.5% Closing Costs & 1% Rehab|
(Click here for SMART Glossary)
You can easily see that, in general, the more doors you invest in, the better the ROI, and the more you leverage your initial investment.
4. College Funding
The best thing to do is to start early. That’s usually hard for most people who are many years away from retirement and may not even have a family yet. But the advantages are enormous. Real estate typically appreciates at a higher rate than most savings plans. That plus equity growth by positive cash flow accumulation and principle repayment over time can build a great nest egg for your children or grandchildren. (click here to see our “Opportunity” video)
5. Early Retirement
Used to be what everybody looks forward to. Now, many people are working well past traditional retirement age. If you find something that you love, you are successful at, or just need to keep doing for any reason, then go for it!
However, there will come a time when you will want to cut back, and maybe not be active in a work situation. When that happens, wouldn’t it be wonderful to have equity built up that you could tap? Our equity gain models help you figure out where you will be in 5, 10, 15 or 20 years. Residential real estate investing can get you where you want to be, when you want to be there.
6. Mortgage Reduction — Another great reason to get started with 1-4s:
If you live in one of your units, such as one side of a duplex, you can lower your investment mortgage significantly, and still leverage the full value of the property while it appreciates! With duplexes, you can usually reduce your mortgage by about 1/2.
What better way to leave something to your heirs, or even just to get family members started in real estate investing? Share the investment, share the rewards, then help them build their own real estate empire.