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To Invest To Not Invest That is the Question

We’ve all heard of the adage ‘don’t put all your eggs in one basket’. Well, one of the ways to follow this golden rule is to look to alternate asset sources to diversify our financial portfolio.  Yes, stocks, bonds, annuities and cash reserves are good to own, but another asset to consider is investment property.  To help give you a little ‘food for thought’, here are our top five advantages and disadvantages to owning investment property.

Advantages

 

1.       Increase Your Net Worth – selecting the right real estate can appreciate over time and build equity far outpacing the rate of inflation. Greater Assets, Higher net worth.

2.       Increase Monthly Cash Flow – Rent cash flow exceeding your monthly mortgage costs are positive cash flows.  More money added to the household piggy bank.

3.       Unique Tax Benefits – Take advantage of deductions like depreciation and expenses associated with travel costs to check on your property.  South Florida anyone!

4.       Real Estate Gives You Control – You are the boss.  Decision making duties are yours only.  No more cubicles.

5.       Counteracts Inflation – Economics 101 – the value of money decreases as prices increase over time. Your monthly mortgage payment is fixed, so as your annual rental income increases, your cost of ownership doesn’t.

Disadvantages

1.       ‘It’s the Economy’ – A downturn in the economy can mean job losses.  Potential for late rent payments and lower property value.

2.       Roll the dice – “Snake Eyes, Bad Tenants” –  Having a bad tenant(s) can not only hit your bottom line, but it can cause a lot of stress and aggravation. BTW, state laws can make evictions very difficult, costly and time consuming.

3.       Keeping with the Jones' – Upgrades and improvements can be costly and they entail cash to keep up with competitors - Stainless steel refrigerator!!

4.       “Death and Taxes” –  Real estate is real property and it needs to be handled as so.  That means we need legal support (lawyer fees!) to take care of deeds and other estate planning needs. Remember tax laws always change.  However, taxes seem to go up more than down.  

5.       We Need a Good Team – Unless you are a true ‘Jack-of-all-Trades, you are going to need good contractors to handle emergency and upgrades needs. No, looking at a YouTube video doesn’t mean you can replace a garbage disposal.

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