Worrying about money is a common source of stress. Unless you have a fortune, you probably think about your monthly bills, groceries, retirement, college funds, and your savings account with some concerns. Perhaps you are doing alright now, but the future is a black hole of questions and fears.
One factor that plays a critical role in your financial situation is real estate. Are you renting a unit to live in and how much does it cost you? Are you planning to buy a house at some point but are uncertain about financing the purchase? Could an investing strategy improve your outlook for the future?
The real estate industry offers immense opportunities for you to improve your financial situation. Let’s talk about a few ways that real estate can impact your finances both now and in the future.
When you think about owning a home, it goes hand in hand with having a mortgage. Few people can afford to buy a home with cash upfront, so instead, they will take out a home loan. For the next ten, fifteen, twenty, or even thirty years, they will be paying back that loan in monthly installments.
However, every payment builds equity in the property. If you sell the home in a few years, having more equity means a greater share of the profits from the sale. There are many types of loans available with varying terms, so you’ll need to understand the differences between VA loan requirements and conventional loan requirements before you choose a lender.
Taxes and Insurance
If you own property of any kind, then you will have to pay property taxes and insurance fees. Buildings must be insured for a transaction to be processed, so you will have to shop around for a homeowners insurance policy or another type of plan, depending on what you plan to do with the property.
Taxes are assessed by the local government, so what you owe for the property to that entity is determined by assessors who may evaluate the property one or two times a year. These additional costs are often overlooked when buyers are first considering a property purchase.
Owning property that you lease out to tenants or guests in return for rental income can be a viable investment strategy. Currently, millennials and younger generations find renting to be an appealing alternative to homeownership, so if you choose the right location, long-term rentals can be incredibly successful.
Vacation rentals are also a huge market, so owning property in a tourism hotspot could yield plenty of guests for an Airbnb or vacation unit.
While you will need to calculate operating expenses, potential income, and mortgage payments to determine if a rental property is a good deal, you could turn this into a full-time business with several properties across multiple states like Minnesota or Michigan.
Perhaps you want to take advantage of the investment opportunities in real estate, but you have no interest in owning and managing property yourself. There is a perfect solution that fits that type of investing preference: real estate investment trusts.
These trusts are an amalgamation of many investors in one fund. The managing firm for that fund then uses the money from investors to buy various types of properties. When profits are made, the fund pays dividends to the investors.
These trusts are low-risk, low-yield opportunities that require very little attention, so you can make some passive income with this strategy without risking significant amounts of money.
If you are not interested in leasing living spaces to tenants or guests, then you could always consider commercial property investing. In this case, you will own a building or part of a building that is used for business.
Then, you will rent out the space to business tenants and earn income from their lease. Commercial properties tend to be larger and, therefore, more expensive, so you will need access to greater assets and significant financing to get started as a commercial property investor. However, the profits can often be higher than they are for residential opportunities.
How Can Real Estate Improve Your Financial Outlook?
Owning property is a common practice in the United States. Whether you decide to own a home, a rental property, or a commercial building, there are plenty of ways that these steps can improve your finances.
With a home, the advantage comes from building equity and eventually selling the house or refinancing, though you will also have to pay for utilities, taxes, and insurance. For rental properties, if you secure upfront financing, you can generate consistent income from tenants.
Even commercial buildings can be a good fit for bigger investors, though those with fewer resources can still invest in a real estate trust. Choose a strategy that fits your lifestyle and start improving your financial situation.