Investing in properties has many benefits when it comes to building long-term wealth, but this wealth is not always secure. In spite of this, as a means of diversifying exposure to different classes of assets, property can be a less volatile choice than shares. It tends to be the haven, investors rush to when other assets suffer. While it has lost its gloss since the boom times of the late 1980s, sensible investments in property have many attractions.
All investments need a benchmark to measure performance against. Residential property isn’t any different, yet few investors monitor their returns. A first investment in property doesn’t always have to be something you live in. Indeed, buying a small apartment to rent out can be a good way to accumulate some cash so you can eventually buy private property. Generally, investing in real estate gives investors two benefits: capital growth and the tax advantages associated with negative gearing. Most investors in the US today take a loan to make this investment.
Capital growth is the money made as the value of a property appreciates. While there’s no guarantee that property will gain in value, historically, property has experienced steady growth. An important factor assessed by banks and financial institutions while offering a loan is “negative gearing”. Gearing basically means borrowing to invest. An investment property that’s negatively geared is one that is purchased using a loan with an annual interest larger than the net rental income amount. Tax benefits are availed by being negatively geared, as the investor is able to deduct the costs of owning an investment property from his overall income. The biggest part of this deduction is the interest portion of the mortgage.
Investment real estate has been looked as a lucrative source of income for many in the US. The funds required to make this investment are within the reach of many citizens with the easily available real estate investment loans.