7 reasons why investment properties should be your first real estate purchase

Buying a home to live in is the traditional route that most people take when they break into the real estate market. However, there are other options like investment properties that offer a lot of benefits, as well. 

If you’re new to the real estate market, here are 6 reasons why buying an investment property can make more sense than buying a new home:

1. Opportunity to earn rental income

When you buy an investment property, you can rent it out and profit from it. With the right property, the right tenants, and the right timing, you’ll start earning steady rental income in no time. Eventually, you’ll be able to build long-term wealth to finance your future real estate purchases.

Investment properties also offer a huge benefit to those who may not have enough funds yet to afford to live in their ideal neighborhood. If you invest in a property located in a popular or growing neighborhood, you could rent it out until you earn enough to purchase your perfect home.

2. Flexibility

One of the major perks of owning an investment property is flexibility. If you’re not exactly ready to settle in one place yet or to get tied to a mortgage, investment properties give you enough elbow room to move around and live your ideal lifestyle – all while earning passive income. This is a big plus, especially if you’re in a career that entails you to relocate often.

Additionally, you’ll be able to get a feel for your investment property’s neighborhood without having to live there. This could help you determine whether to settle in the same area or not.

3. Tax benefits 

Having an investment property also comes with awesome tax benefits when you rent it out. The majority of expenses that go into maintaining, managing, and advertising the rental property are deductible. 

Tax deductions from rental property depreciation, for instance, help you to recover the amount you spent on purchasing and improving your property. This tax deduction is set into motion the moment your property starts generating income. 

Rental property owners can also take advantage of mortgage interest deductions, which subtract your rental income from your mortgage interest.

Other deductible expenses for your rental property include:

• Repairs that keep your property in good condition

• Utilities (gas, electricity, or water)

• Interest paid on business-related expenses

• Premiums paid on fire, theft, and flood insurance 

• Homeowner association fees

• Business-related travel expenses

• Legal and professional fees

4. Home equity

If you want to build home equity, one of the best ways to do it is by purchasing an investment property. Home equity, which the money you receive after completing mortgage payments, goes up as your property’s value increases and your total debt decreases. Since rental properties grow in value through appreciation, debt leverage, and monthly income, these are powerful wealth builders that can boost your home equity.

5. Rising home values

One of the main reasons why you should purchase an investment property over a home for living in is the rise in home values. According to a report released by CoreLogic, a leading data analytics firm, the value of real estate properties in the country is expected to grow by 5.4% as of July 2020. The high demand for homes, along with rising family incomes and low mortgage rates, has led to an appreciation in property values. 

Home values in Chicago have also been on the rise, albeit slowly. The Financial Times reported that the price of homes in this thriving city has increased by 1.9% in the last 12 months. Moreover, the trend isn’t foreseen to go down any time soon. 

With the real estate market trends reflecting a rosy future, you’ll be able to get a positive rate of return on your property the moment you decide to sell it.

6. Lower mortgage interest rates

Buying an investment property also leads to lower mortgage interest rates, especially when it comes to your down payment amount, debt-to-income ratio, and credit score. Since investment properties aren’t typically covered by mortgage insurance, you’re required to pay at least a 20% down payment. With a down payment this hefty, banks and lenders are expected to offer lower interest rates.

7. Diversification of assets

Acquiring investment properties boosts and expands your asset portfolio. In asset diversification, you also mitigate the risk of getting into a financial rut. This can be done by putting your funds into not just one but several financial instruments, and that includes investment properties in real estate.`