Buying property as an investment is something that many millennials may think of as being out of reach, or the type of investment that requires substantial expenditures in time. However, the truth is that investing in property offers the opportunity for many millennials to build a respectable portfolio of investments that will not only appreciate in value, but also pay dividends in the form of rent. In many ways, it is an investment that pays for itself. Read on to learn more and to find out if purchasing property as an investment is right for you.
Getting on the Property Ladder
For many Millenials, getting on the property ladder is a hard climb. Home prices are high, and the thought of having a mortgage is a bit frightening. However, what is more frightening for many is the thought of simply throwing money away every month on rent. Investing in property allows someone to get on the property ladder, and in many cases get a place to live out of the balance. Duplexes and in-law apartments offer a great chance to offset some of the added cost of owning property, as well as providing an opportunity to gain experience as a landlord.
Property Increases in Value
Mark Twain once remarked that one should “buy land, as they aren’t making it any more.” While some projects in the Middle East and the Netherlands might prove the writer wrong, the fact is that property does tend to increase in value over time. Some truisms state that property doubles in value every ten years. While there may be little data to concretely back this up in every case, it is a pretty reliable rule of thumb. This is especially true of land that is developed for continual use; a farm may not increase in value, but an apartment complex located near a university almost certainly will.
Borrowing Against Property
Outside of a hedge funds, few entities are permitted to borrow money to buy an asset. The big exception is a mortgage. Because banks and credit unions know that property tends to increase in value, they are willing to loan money on much more accessible terms than are typically found. This is especially true for younger purchases who, while still not wealthy, have built a history of steady employment. Even a traditional mortgage takes the assumption that the purchaser will only put down 20% of the total price, with some mortgages accepting much less in the form of a down payment. For those looking to rent their properties, this can immediately create a substantial profit
Buying property also offers a number of tax advantages. Depending on your jurisdiction, these can vary greatly. However, for those who are renting out part of their primary residence, the tax benefits can be quite substantial. Many individuals are able to deduct their mortgage interest from their taxes, a considerable benefit that could reduce tax liability by thousands of dollars a year. Capital improvements can also be tax deductible.
Of course, there are other advantages as well. Any value gained from selling the property, rather than renting it, is considered a capital gain. Capital gains are almost always taxed at a much lower rate than typical income, which means that unlike other investment options, you could be paying a lower tax rate overall.
Low Interest Rates
Interest rates are still quite low, and chances are that this will continue for some time. Additionally, for those who choose to lease out half of a duplex or a basement apartment while living in the rest of the building, government-subsidized mortgages offer even lower interest rates. As a result, it is possible to take advantage of the time-value of money in a way that might even beat inflation. At the very least, it will allow you to make money using someone else’s cash, as long as you can meet the payments.
Easy to Add Value
Have a green thumb? What about an eye towards design? In either case, you can take your talents and add substantially to the value of a property. Something as simple as planting a few bushes or updating the paint color of a room can add significant amounts to the rent charged for a property every month. For those focused on more long-term growth, more involved work can help the total value of the property increase dramatically. While some of those efforts may require paying an outside professional, they can still be viewed as investing back into the property, especially if the new value exceeds the amount spent in the first place.
If you are investing in a stock or a friend’s new startup, there is a chance that the investment could end up being absolutely worthless. Few people are trading shares of Lehman Brothers anymore, nor are solar-powered socks really likely to take over the market. Property, on the other hand, experiences relatively little in the way of an immediate depreciation. Yes, there are some properties out there that are hard to move, but few people are looking to invest in these. Instead, by following a few common sense techniques, it is possible to build an investment portfolio that experiences little in the way of depreciation. As a general rule, land is always worth something. Also, it is much easier to insure a property investment: if the property is destroyed through a fire, chances are that insurance will cover the costs. Try finding that in a penny stock.
While investing in property is often a great choice to build one’s net worth, it is the sort of act that requires expert guidance. After the sell, one of the best ways to reduce the headaches that could arise is through using an expert property management firm, like Zetland Raine&Horne Property Management. From managing tenants to handling emergency calls at 3 in the morning, we make your job as a landlord much easier. To find out how we can help you, get in touch today.