When you’re considering the investment worthiness of a property, it’s easy to forget the factors that should be paramount in your decision. Here are three to keep in mind:
1. Monthly principal payments. We’ve talked a lot about positive and negative cash flow, but let’s not forget that every month you’re paying down the principal balance on the mortgage, which serves as a sort of forced savings. When trying to discern a good deal from a bad deal, compare the principal you’d pay on a given property to other types of long-term investment for retirement.
“Real estate is one of those assets that appreciates each year, yet it depreciates in the eyes of the tax law.”
2. Potential additional income derived from late fees. Every now and then, a tenant might be late on their rent payment, and you’ll earn a little extra income from the attached late fee. Everyone’s happy in the end: The tenant is able to stay in the property for a small fee on top of rent, and you feel justly compensated for the late payment.
3. Appreciation over time. This is why I love investment property. Real estate is one of those assets that appreciates each year, yet it depreciates in the eyes of the tax law. Did you know you can actually depreciate your property while you own it by deducting the cost of buying or improving it? Before you go this route, though, be sure to consult with your CPA on what’s most appropriate for your specific situation.
If you have any questions or would like more details about these key factors when investing in real estate, please don’t hesitate to let me know. I hope to hear from you soon!