Real estate has always been a traditionally strong investment. Like any other industry it goes through cycles but usually manages to generate a positive return. Some of the wealthiest people in the country have made their money investing in real estate. What makes it so great is that there is no license needed or financing requirement. Furthermore you can begin with any experience level at any age. There are currently attractive loan programs that provide the advantage of homeownership coupled with the ability to produce rental income. If you didn’t think homeownership was possible, you may be surprised to learn just how easy building a portfolio can be.
The two biggest hurdles that many homebuyers face is juggling down payment while keeping their expenses low. With an FHA loan you can have the best of both worlds. FHA is a loan program that allows borrowers to put down a minimum of just 3.5% of the purchase price. This number is much lower than conventional loans that require anywhere from five to twenty percent down payment. What makes this even more attractive is that an FHA loan is good for any property one to four units. With just a minimal down payment you can start building your portfolio with a two family property.
Under this scenario you can live in one of the units while renting out the other. The rental income can be used to offset your monthly payment, build equity or pay down other debt. Your net monthly payment will end up being significantly lower than any monthly payment you would have on a rental property. Additionally there are other significant financial benefits of home ownership. The first is the ability to use your home to lower your tax basis. As a homeowner you can take advantage of depreciation, mortgage interest payments and other expenses. There are also write offs you can use that are specific to rental properties. The tax benefits alone make homeownership an attractive option.
Real estate values are not guaranteed to increase. However, over time we have seen that values do inch up and typically appreciate. A property bought at the right time and in the right market will have a much higher value five, ten and even twenty years down the road. Many buyers view their property as a method of forced savings. Even if property values don’t skyrocket you are paying down your loan balance every month. This builds equity which offers you the option of selling for a profit at some point in the future. It also allows you to explore multiple refinancing options where you can pull cash out to purchase your next investment property. All this can be started with a 3.5% down payment and the willingness to explore all of your options.
One of the secrets of wealth building is letting your money work for you. With savings rate hovering around 1% real estate is an attractive and viable alternative. Don’t let old preconceptions about getting a mortgage or buying a home get in your way of exploring the market. It is never too early to start building your real estate portfolio.