The Benefits Of Purchasing Multifamily Real Estate In California
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If you’re thinking about purchasing multi-family real estate in San Diego, you’re probably doing so for the numerous financial benefits that you will get as a result. Investing in real estate has long been known as a great way for building wealth, and if you invest in a larger multi-family unit, then your potential for earning an excellent return on your money will usually increase significantly.
While investing money in a multi-family real estate unit will cost more than buying a single-family home, the increased financial benefits usually make the investment well worth it.
Investing In Real Estate Lets You Build Equity
One of the main ways that investing in real estate helps you to build wealth is by building equity. Equity is the positive difference between the amount of money that you own on a property and the amount of money that the property is worth. Equity is built through a combination of paying down the balance that you owe on your mortgage, as well as the appreciation that your property accumulates over time.
When you buy a single-family home each payment that you make goes primarily to interest, with a small amount going toward the principle that you owe. This is also true with a multi-family unit, but there are two key differences.
First, each month you’ll be paying more toward the principal, not necessarily a higher percentage, but a larger payment due to the larger amount that is owed. That means that each month more money goes toward the principal than would with a single-family home, which builds more equity. Second, you’ll be renting units out to tenants, so the income you get in rent from them will be used to cover that mortgage payment, and if all goes according to plan you’ll be building equity without having to make payments out of your own pocket!
Investing In Multi-Family Real Estate Should Increase Your Cash Flow
When you invest in a rental property you’re taking on a new mortgage and usually putting down an initial down payment, so how can this possibly increase your cash flow? That’s simple, it’s because the total amount of rent that you collect each month should be higher than your mortgage payment is. The extra money that you collect each month can be saved to help pay for property repairs, or to hire a property management company to deal with the day-to-day operation of your complex.
You can use the additional income to pay down your mortgage, put it in your personal savings, or use it as additional income to help cover your expenses. The point is that while buying a multi-family real estate property will involve an initial investment, you should start recouping your money on a monthly basis and enjoy a steady income stream.
Real Estate Almost Always Appreciates In Value
While making monthly payments toward your mortgage will help to build some equity in your property, the real increase is almost always due to the appreciation of the property. Real estate almost always increases in value. While there are rare exceptions when the market will crash, in the end, it always rebounds and property values always end up increasing over time. Of course, you’ll have to maintain your property and make the occasional investment in improvements, but even taking this into account you should still end up profitable in the long run.
How you use the built-up equity is entirely up to you. You can refinance your property, pull out cash, the increase your rent to cover the increased mortgage, giving you a nice influx of cash. You can simply keep your property secure in the knowledge that should you need it, there’s a large amount of equity that you can tap into. Or, you can sell the property, using the proceeds to pay off your mortgage while recovering your initial investment and still turning a profit.
Investing In Rental Property Gives You Tax Benefits
When you have a residential property that you live in, in California, there are limits to what you are able to write off on your taxes. When you have a multi-family rental unit, your tax benefits are significantly better. Not only can you write off mortgage interest, but you can also write off property depreciation if it occurs, as well as operating costs, and repair costs.
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