When you think of a real estate investment, you may think about rental properties. You may think that your renter pays some or all of your mortgage payment, and eventually, you will make a regular passive income from these investments. However, investing in real estate presents many opportunities.
Benefits of Investing
As long as you properly analyze your investments, these assets will typically accrue in value, especially if you take good care of them. They will also provide you with a stable passive income as your rental income increases. Although your return on investment may be lower, investing in real estate is less risky than investing in the stock market, which has high volatility. Your properties will provide you with numerous tax deductions, such as depreciation, property taxes, mortgage interest, traveling expenses and property management fees, saving you significant money on your annual taxes.
Because each property has inherent value, you can use it as leverage. For example, your mortgage leverages the value of the property so you only have to have cash for a portion of its value. As your equity increases, you can leverage this amount to purchase additional properties.
Multiple Income Streams
The most common type of income stream is rental income. Whether you invest in commercial or residential real estate, you can lease your properties and earn an income. Initially, some of this income will pay any mortgage you have on the property, but over time, you will begin earning a passive rental income.
Your properties should also rise in value. For example, if land or housing becomes scarce, your value will automatically increase. In addition, as you make repairs or upgrade your real estate holdings, you will find that they appraise higher. Any time commercial spaces are located near your investments, their value increases.
If you have commercial or multiunit holdings, you may also experience ancillary income. For example, you may install vending machines or laundry rooms in these properties. Your tenants will typically use easily accessible services or products, expanding your income.
Finally, if you work in real estate, as a broker or property manager, you will also earn commissions and fees. For example, brokers earn a commission based on the sale price of the property, and management companies receive a portion of the rental income property owners receive each month. If you plan to manage your own properties, you may earn additional income by offering to manage other investors’ properties as well.
If you hope to use your money to create a future passive income, develop a smart real estate investment strategy that takes advantages of these investment benefits and multiple possible income streams.