A lot can happen in one, two, or five years.
After buying a home, a lot can happen in even a shorter amount of time. That’s because buying a home brings so much JOY, along with great financial opportunities.
With that said, I’m sharing with you five ways in which buying a home—or several homes—can be profitable.
1. Cash Flow
Cash flow is the money that comes into your account as a payment for a good or service. When your tenants submit their monthly rent, it generates cash flow.
The size of your cash flow depends on various factors, including your initial investment, the rental market, and additional costs associated with owning real estate. With the right plan, you can invest wisely and produce positive cash flow from your investment.
And as the economy thrives and the mortgage principal decreases, your cash flow provides a steady and reliable investment.
2. Inflation Hedge
Inflation is a challenge for investors because it dilutes your buying power. An inflation hedge is any investment that protects investors from this effect. When you invest in real estate, you’re betting on a reliable asset that you expect to increase in value as time goes on. This can offset the downside of inflation and protect your investments in the future.
3. Appreciation
As time passes, your investment has the potential for tremendous growth through appreciation.
The value of your investment, its appreciation, can increase as interest rates go down, demand for real estate increases, or there’s a shortage of homes on the market.
Playing the waiting game can prove to be a sound financial decision, as time can change the market and swing in homeowners’ favor. While you get a steady cash flow from monthly rent payments, smart investors can also cash out at the right time and sell their appreciated property for a nice return.
4. Loan Paydown
Depending on your goals, loan paydown through the rent paid by your tenants not only helps boost cash flow, but also allows you the flexibility to put your other assets to work as your mortgage payments are taken care of.
5. Tax Benefits
Landlords and homeowners can itemize deductions, possibly reducing taxable income by deducting the mortgage interest. Additionally, they can use some of the money borrowed through a home equity loan, or the costs for home improvements, as deductions.
Over a period of time, landlords can also get tax breaks as their properties break down. The depreciation deduction includes only the value of the property’s structure and other primary features like windows and large appliances. The catch, however, is that the value of land is not deductible.
Together, all these benefits give investors the tools they need to be profitable in the exciting world of real estate.