Why is Real Estate an Important Part of Your Portfolio?
Unlike sometimes risky stocks, bonds, and other monetized investments real estate is a solid and secure investment everyone should have in their portfolio. Whether it is your current home, a property used for rental income, or a second home, real estate offers you a tangible, ever-present, investment.
First, let’s start with the obvious; no matter what the stock market does owning a home and the land it rests on guarantees you a roof over your head. It is the only vehicle for the everyday investor that offers both shelter from the weather and taxes. For most people the mortgage against your home is the biggest write off available for your taxes.
As you pay down the loan acquired to purchase your real estate you build equity. Most people use their home and its equity as forced savings for retirement, collecting it when the home is sold. There are however other options. One popular and savvy option is to leverage the equity in your home with additional loans or lines of credit thus putting you in a position to expand your wealth by gaining the capital to invest in other things. These other investments should have a rate of return that exceeds your interest rate, if they do you may then use these secondary investments to repay the loan. This option is especially effective when used to buy additional real estate with the intention to collect rental income from it.
Of course there are as many scenarios as property types out there with differing tax laws depending on your intended use for each particular piece of real estate (primary residences, investment homes, rental properties, etc.). Always consult with a licensed mortgage professional in order to review the cost for any transaction. Also remember to consult a knowledgeable accountant who can advise on the tax laws and any implications an investment may have on your tax consequence.