By Alex Mednick
The housing market is only heating up.
As a result of the Tax Cuts and Jobs Act of 2018, there has never been a better time to be a landlord. Combined with other significant factors, the current conditions in the real estate market make it an ideal time to invest.
At the moment, mortgage rates are exceptionally low by historical standards — and (at the time of the linked blog’s writing) by recent standards, too. Home prices are rising at roughly twice the rate of general inflation. And lenders are much more willing than usual to provide financing to sound borrowers.
All of this adds up to an extremely encouraging portrait of an opportunity that should have you eager to jump on. Provided you are either an experienced real estate investor or someone who has done thorough research, the time is now to procure some serious profits on an investment property.
One of the most significant provisions of the tax bill affecting real estate investors is the 199A pass-through deduction. This allows residential landlords who operate as pass-through entities to deduct 20 percent of net rental income right off the top. For pass-through entities to qualify, total annual income must be less than $157,500 for single filers and $315,000 for those who are married and file jointly.
Needless to say, qualified landlords could reap huge benefits thanks to these (relatively) new advantages. There are also additional expansions on existing tax benefits that could only make your bank account happier, so be sure to consult with your financial advisor or accountant to determine if you qualify for each deduction.
Now, while the Tax Cuts and Jobs Act has/will certainly served as the impetus for plenty of real estate investments, the pros of it have always been strong. Compared to the stock market, real estate provides greater potential for higher return on investments while offering lower risk. Sure, you must be very educated and competent in the potential pitfalls of a real estate investment but, once you are, the choice may become clearer than you think.
First of all, if you have a rental income then there is a monthly cash flow that you not only wouldn’t receive with succeeding stock investments, but would also keep pace with inflation. If flipping houses is your game, then buying low and selling high is easier to do in this arena than in the stock market, where anomalies are quickly adjusted for by other investors. In the real estate market, there are thousands of little markets. You can always find deals and “buy low.”
Risk is undoubtedly lower when investing in real estate as opposed to the stock market. The long-term nature of real estate assets ensures that you hold on through ups and downs. All the while, rents and property prices rise due to inflation.
In general, your risk of loss goes down the longer you hold real estate investments. Your equity builds and home prices rise over time. That is unlike the stock market, where the risk typically stays the same while your ability to buy or sell based on emotion can only complicate matters.
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We understand that simply taking whatever disposable income you may have and throwing it at some rental property is not always feasible. Being educated and prepared before moving forward with an investment in real estate is paramount to its ultimate success.
Even more important than being prepared, however, is having the money to do it. Obvious, but still worth saying. If your personal funds aren’t enough to pursue some promising opportunity that presents itself to you, a Self-Directed IRA could be exactly what you are looking for.
By utilizing your retirement money in alternative investments, a Self-Directed IRA affords you the ability to tap into the resources necessary to pounce on an otherwise out-of-reach investment. Better yet, our Self-Directed IRA with Checkbook Control is ideal for real estate, given the authority it provides you to execute all your own transactions and the absence of fees on those transactions.
Hesitancy with real estate investments can be expected given its less-than-sterling reputation following the events of last decade. However, it seems as if we have learned from past mistakes, and new laws have only emboldened investors to shake off any remaining fear.
We are proud to be able to help you use your retirement funds to take your first step into the real estate waters. It’s up to you to dive in…and the temperature is great.