December 8, 2020
Why Millennials Should Invest in Real Estate
In the past, Boomers and Gen Xers saw buying a home and investing in the stock market as a viable path to building wealth or saving for retirement. Times have changed. Social Security is expected to drain by 2035. The stock market no longer provides long-term security. And fewer people want to take on sizable mortgage debt.
Millennials – those born between 1982 and 2000 – now outnumber all generations in the U.S., with a total population of 75.4 million people. However, fewer millennials are buying houses at a young age. This is due to the ongoing trend of getting married and starting a family later in life.
Yet, with the decline in mortgage loans, Millennials are interested in the prospect of real estate investment. According to a Real Estate Investing Report by Harris Interactive, 55 percent of Millennials said they were interested in real estate investing. So, if you are a Millennial, now is the time to consider real estate investment to build wealth and plan for retirement. There are several reasons why you should invest in real estate.
What is passive income? It is money that you earn, whether you are working or not. It is the opposite of working a 9 to 5 job where you must put in the hour to get a paycheck from your boss. With real estate investing, you generate income in the form of rentals or flipping houses. You simply buy a home, renovate it, and sell it back for a higher price or put a for rent sign in the front yard.
Passive income gives you the flexibility you need to work when you want. However, you are still generating income, whether you work or not. You still need to put forth an effort to find the deals, renovate the homes, and find the tenants. However, you are not working for someone else who tells you when to be in your seat and when you can go home each day.
Real Estate Has High Value
In most cases, the value of real estate appreciates. When you buy a rental property today, you can nearly count on making a sizable profit on it ten years from now (assuming you take care of the property). Real estate appreciates because the market slowly climbs each year. Sure, there may be the occasional dip in real estate values every few years. However, they rarely affect the value of your property over time.
On average, the national appreciation rate for properties is 3.8 to 3.9 percent. That may not seem like a lot on the outset. However, when you do the math, you can see an increase in your home’s value. For instance, if you have a rental property valued at $200,000 at purchase, an annual increase of 3.9 percent would put the property’s value at roughly $270,000 in ten years.
Keep in mind that rental properties or properties used for business purposes often appreciate at a much higher rate.
Once you start investing in real estate, you will quickly discover that the government provides tax benefits and incentives. You can get tax breaks that you would never get working a 9 to 5 job. First, you can cite numerous deductions such as
- Property taxes
- Mortgage interest
- Property management fees
- Capital improvements
- Advertising expenses.
Second, if you own a property that is being used for business for a year or more, you can depreciate the property’s cost over time. Depreciation is the method of deducting a property’s loss in value over its expected life, which for residential property is 27.5 years, and commercial property is 39 years. In essence, it’s accounting for a decrease in value from average use and wear and tear.
Third, when you sell a property for more than you originally purchased it for, the profit will be taxed as short-term or long-term capital gains. Short-term capital gains are properties held one year or less. Long-term capital gains are properties held a year and one day or longer. You can utilize certain tax-deferred or tax-free methods of investing in real estate to avoid paying capital gains.
When it comes to tax breaks, this is just the beginning. You can discover over a dozen ways to save taxes and take advantage of government incentives.
Real estate investment at a young age is ideal as it offers more financial security than other forms of investment like mutual funds or gold. Considering the uncertainties of life, it is always advisable to have an emergency fund to withstand loss of a job or ill health. Investing early in real estate can help sheltering you from unpredictable situations, apart from making your retirement more secure and happier.
The chances of reaping huge financial benefits at an early age are high when you make a wise real estate investment. However, as a Millennial, you must consider various factors such as location, the reputation of the builder, social infrastructure, and important amenities, among other factors when investing in real estate.
You Can Be Successful in Real Estate Investing
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