Investing in real estate is a wise financial decision. It’s a great way to supplement your income, diversify your stock portfolio, and create a valuable “nest egg” of funding for the future.
If you’ve invested in a property that you’re now renting out, congratulations! This is a smart move for your finances. Now that you’ve started growing your wealth, it’s important to stay up to date with it. Checking in on your investments to ensure they’re still in your best interest is an important part of the investment process.
Maybe you’ve had your investment for a while and you’re wondering whether or not it’s still worth it. Let’s dive into smart investments, and how to make sure yours is still performing where it should.
Review Your Financial Benefits
Coming into the investment game, you probably chose your particular property because of its many financial benefits. First there’s the cash flow, or the money left over after all expenses and monthly loan payments are made. Having a monthly cash flow is exciting because it feels like pure income.
Next is the principal reduction, which is the amount of your loan that’s paid with your tenant’s monthly rent. Income Tax Savings are another huge benefit because you’re allowed to take depreciation deductions over time. These benefits can allow you to protect your cash flow and principal reduction.
Finally, there’s appreciation, also known as how much your property increases in value over time.
How Much Was Your Initial Investment?
And has it increased over time? It’s likely that your investment property appreciated in value over the years, and may now be worth as much as $50,000 more than what you paid for it!
Even if you’re property appreciated and you’ve managed to pay off a lot of the mortgage, your investment might not be performing at its peak. If that’s the case, it may be time to sell and re-invest.
Do the Math
Let’s say you purchased your investment for $50,000 20 years ago. Your down payment was $10,000 and you took out a mortgage loan for the rest. When you first bought the property, you might have been raking in as much as $2,000 from tax benefits, cash flow, and principal reduction. That’s 20% on your investment’s down payment. Not too shabby!
However, as time passes, the depreciation deductions you’re able to count are no longer able to protect your benefits. This happens as a result of inflation and simply owning the home too long. When you have investment income that’s not protected, you risk having to pay additional taxes on it.
If you subtract your taxes from your total benefits (principal reduction, tax benefit, cash flow), you may find that you’re not quite making 20% of the money you’ve put into your home!
Don’t feel like doing the math to determine your investment equity? You don’t have to.
We offer a complimentary evaluation of your investment properties to determine your current equity. All we need is a little bit of information about your property, and we’ll take care of the rest.
Any additional questions about investing in Lake Norman real estate? Please don’t hesitate to give us a call at (704) 902-6755.