Ask any seasoned industry professional, and they’ll all tell you the same thing: real estate is about much more than just keeping a roof over your head.
Buying a house is one thing. Using that house to start a full-fledged career is something else entirely. Real estate can be a potent tool for financial growth, for example. It’s something that people do every day. There’s a reason why dedicated investors often look to real estate to diversify their portfolios, after all.
There are several distinct ways in which real estate can positively impact your finances. Understanding what they are and how they work puts you in a better position to unlock their full potential.
Rising Property Values
Most of the financial benefits of real estate come from rising property values. Barring some type of catastrophe, the value should steadily increase over time when you buy a house. Therefore, you should be able to, at the very least, sell it for a modest profit, if not an impressive one, depending on the situation.
Property values often rise slowly but surely, which can increase your overall net worth as well. For example, that property can be used as an asset when you apply for a loan. The more the property is worth, the more money you’ll get approved for. That’s just one example.
But even if you’re not thinking of just buying and selling a property in a traditional sense, wholesale real estate is always an option. Here, you don’t necessarily need the property value to go up immediately – you simply need to find someone who believes that may happen.
With wholesale real estate, you negotiate with the owner of a property to sell it for one price while negotiating with a buyer to agree to purchase it for a higher one. There’s no upfront investment, and you don’t actually need to buy anything yourself.
The buyer could want the property in question for a number of reasons. Maybe they want to fix it up and “flip” it for themselves. Perhaps the house is located in an area considered “up and coming,” and they plan on making a significant profit on it when they sell it in a decade.
It doesn’t matter – all of that is someone else’s concern. Your concern is with the present, making wholesale real estate a great way to improve your finances. It can also help you start to build a professional network if you want to expand your real estate career moving forward.
The Possibility of Rental Income
Another great way that real estate can positively impact your finances is through rental income.
Whether you currently own a home you’re not living in or are explicitly thinking about purchasing one to rent it out, generating rental income is an excellent idea for more than just its passivity. In the bigger picture, having that consistent rent check coming in every month can create a steady stream of cash. You may have to do a little work to find the right tenant who will pay online, who won’t cause too many problems, and who doesn’t need much in the way of regular assistance, but it’s possible. Homeowners form great relationships with their tenants all the time.
Even if that steady cash flow isn’t necessarily the biggest amount in the world, that’s okay – it can still offset some of your living expenses. You can use it to pay down certain high-interest debts that you might have to otherwise only make the minimum payments on, like personal loans or credit cards.
Depending on your current financial status, you could even just use it to generate additional income for the sake of it. If you’re already on solid financial ground and just want to have a bit of discretionary income that you don’t have right now, rental income could be a great way to do it.
Offsetting Capital Gains
Finally, you have the tax-related implications of real estate investments. That is to say, remember that just because you haven’t made money doesn’t mean you haven’t saved money as a result.
Case in point: capital gains. If you’ve sold assets elsewhere throughout the year, you’ll have to pay capital gains taxes on the amount you made over the original purchase price. But if you own real estate in a market that has had a tough year, you can offset some of those losses to make up for the capital gains you would otherwise have to pay.
You haven’t technically made any money on paper, but in practice, you’re saving a lot more than you otherwise would on valuable assets like stocks.
Overall, it’s essential to recognize that real estate can be a powerful tool for financial growth with the right strategy as your guide. But as is true in so many other areas of this life, not all strategies are created in quite the same way.
One person’s perception of a solid financial future may vary wildly from the next. This is why there is no “one size fits all” approach to what you’re trying to do. You need to start by making a list of your own unique goals. Financially speaking, what do you want to accomplish this year? In five years? In fifty years?
Then, you can work backward to the present, putting together the right strategy to accomplish those goals in the most strategic way possible. Once that is in place, you can see how real estate can fit into that strategy and provide as much value as possible. When you think about things from an analytical perspective like that, opportunities can’t help but reveal themselves.
All that is to say that by strategically investing in the right property at the right time, you can secure your financial future, little by little. Then, you can work on achieving your long-term financial goals, which in and of itself is the most important benefit of all.
