Investing in real estate is something many put off for some distant future. Renting isn’t always fun, and it may not leave you with anything at the end of your rent agreement, but at least it’s flexible and almost risk-free, right? The truth is, though, that owning real estate can cost the same – or even less – than renting. It can also be flexible and low-risk, if you make savvy decisions.
How can owning a property ever be cheaper than renting? One thing many people don’t consider is the tax break you receive from owning. The amount you spend on property tax and the interest you pay on your mortgage are both deducted from your taxable income. So if you are making $50,000 annually and paying $10,000 in property tax and interest, you’ll only be taxed on $40,000. On the other hand, as a renter, you don’t receive any tax breaks even though you’re still paying for a roof over your head. The government gives you a big discount for home ownership, even though you’re the one who owns this valuable investment.
But best of all, you might be able to receive the tax breaks – meaning more disposable income for you — and get free housing if you purchase a home large enough to rent out. Live with your friends and let them pay your mortgage. I’ve seen smart college students do it off-campus, as well as many young professionals buying their first place. As long as you’re brave enough to take on just slightly more risk than others, you can also reap some pretty great rewards.
And it can also be a low-risk proposition with programs like CIA Landlords Insurance. Landlords insurance allows you to insure the building and its contents. You can even insure the rent itself, which means that you can be on a fixed budget and still swing your monthly mortgage payment, even if you have a problem with a renter. Roll your insurance costs into the total expenses of home ownership and then divvy those expenses up among your renters, and you can live for the same or less than you did renting (of course, you’ll need to be sure you’re looking at rental rates in your area as well). With the right property and roommates, you might be able to live rent-free. Properly insured, you won’t have much to stress about, either. And eventually, you’ll have an investment with great passive income, where you’re receiving rents each month but have no mortgage.
On top of that, you’ll have an investment for the long-term. Even if the property market takes a dip, rent values tend to stay high, so you can continue renting out your place even if you need to move to a different location. Your renters will keep paying your mortgage.
Track All Your Accounts With Personal Capital
Personal Capital lets you see all of your accounts in one convenient place. Sign up now for free.Owning some real estate is also a great way to diversify your investments, helping you weather any changes in the stock market or the economy. It might seem like taking on a new risk at first, but real estate investment can actually be a great way to reduce your financial risk overall and reach your financial goals.
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