If you’ve ever owned a home before, you know that real estate transactions require a great deal of due diligence (and retaining a knowledgeable agent helps a lot).
Yet, investment properties offer unique benefits that might not be as readily available from other investment forms like stocks, including:
1) Steady Income
Unless you purchase a stock with a regular dividend-yield, you won’t see any income from that investment until you sell the stock and collect the appreciation.
With rental real estate, purchasing a property for a monthly cost less than what you can ask in rent produces a positive cash flow differential each month that goes into your pocket.
2) “Other People’s Money”
Banks won’t often lend money for stock investments, but they will for real estate investments. This is a big advantage over other forms of investing.
And as long as you can secure tenants for a rental cost higher than your property’s monthly expenses, your tenants are essentially paying the mortgage for you until you own the property free-and-clear.
3) Tax Advantages
Laws can change, but real estate has been a protected and subsidized investment class for many decades.
Mortgage interest payments and property taxes can often be deducted from your taxes. Additionally, the famous “1031 exchange” allows investors to defer paying capital gains taxes on an investment property when it is sold, as long as another “like-kind property” is purchased with the profit from the sale of the first property.
If you’re only interested in the steady rental income and never “cash-out” by selling the property without a 1031 exchange, you could effectively defer those taxes for your entire lifetime.
Where and What Should You Buy?
Most new investors begin with three-bedroom/two-bath residential properties, or by renting out one-half of a duplex and living in the other.
The advantage of investing in 3/2 homes is they’re very liquid and easier to sell or rent out. Irregular properties usually have a smaller pool of interested parties, so they can take longer to find tenants or buyers.
However, due to Austin’s fast-growing population, condominium investing has also become quite common.