Today, I will answer a key question that you might be asking, why is Raleigh Real Estate a good investment? The answer really will be true of investing in real estate anywhere.
A real estate investor who purchases can earn a return or make money on his or her investment in different ways. The first way is cash flow. This is where you have “extra money” at the end of the year after paying for all operating expenses including any mortgage payments, taxes, insurance, repairs, etc.
The second way a Raleigh real estate investor can earn a return on their money is through equity income. This is also known as principal reduction. Sometimes an investor will not purchase real estate using all cash. They will make the purchase using a mortgage. Often the down payment requirements for an investment loan are higher as well as the interest rate on that loan, but it is still using other people’s money to purchase the investment property. This is known as leverage.
Usually every time a payment on the mortgage is made a certain amount of money paid is applied against the original loan amount (principle). This reduces the balance that is owed. Eventually over the life of the loan, the equity in the home builds until the loan is paid off and no more is owed. In a way it is like putting money in the bank each month, but in the case of rental real estate, someone else is paying the mortgage payment for you. When it comes time to sell the property, the investor owes less and receives the difference at closing.
The third way a real estate investor earns a return is through appreciation. Since the mortgage and housing meltdown several years ago, many areas within the Triangle have not been appreciating. In fact, home sale prices have declined, but this trend is not going to last forever. This is why it is important to recognize that investing in real estate is a long term investment. As an example, if you purchased a home in Raleigh area prior to 2003, it probably can be sold at a profit.
The fourth means whereby real estate investing can produce a monetary return is through tax savings. There are different types of real estate investments that can produce tax free returns. Some of these can produce cash and others produce a “loss” which can be written off against other income.
Watch for more to come regarding investing in Raleigh real estate in future blogs. Or give the Marti Hampton team a call for answers to your questions.