Investing in real estate can mean several different things: you can flip real estate, wholesale, or buy to sell when the property appreciates in value. But the most profitably practice is to buy and rent out.

Why do this?

1- High Leverage

Real estate has high leverage. You can get a loan more easily for real estate than for other investment vehicles.

2- High ROI

High leverage and a high return on investment (ROI) go hand in hand. When you use borrowed capital for an investment, you are only using a small portion of your own money to invest in the property, which helps you get a better return on your investment in the long run.

Furthermore, when you rent to tenants, you expect their rent to cover not only marginal expenses, but also to pay off the interest payable on your loans. This allows your profits to exceed many other types of investments. You are ultimately expecting your profits to be made greater than the interest you owe, which increases your ROI.

3- Diversify Your Assets and High Appreciation

One of the first lessons you learn about investing is the power of diversification. In order to see real benefits without too much risk, it is smart to invest in many markets. Real estate is its own market and your asset is the property itself. Having real estate as an asset is beneficial because it appreciates over time.  

Even despite recent crashes in the real estate market, it’s safe to assume some level of appreciation in the long term. The value of real estate can rise and fall, but it is considered a safer, steadier market, especially in the long haul.

4- Tax Benefits

Owning real estate allows for many different kinds of tax deductions, like the ones below:

• Interest: Landlords can deduct interest from mortgage interest payments on loans used to buy or improve the property. You can also deduct interest on credit cards used for goods or services used for your property.
• Depreciation: Real estate gives you tax benefits by way of depreciation if the property is providing you income. This way, landlords can deduct the cost of the property over several years.  
• Repairs: The cost of repairs is deductible in the year in which they are done. For example, if you repaint, fix the floors, or replace any broken appliances, you can deduct these costs.
• Home office: If you work from home, which is common as a DIY landlord, then you can likely deduct home office expenses from your taxable income, provided you meet certain requirements. This is true whether you own your home or whether you are also a renter.
• Insurance: You can deduct insurance premiums from any insurance policy that has to do with your rental investment. This includes landlord liability insurance, flood/fire/theft insurance, or the cost of an employee’s insurance.

The benefit of using tax deductions is self-evident–you keep more of your taxable income in your pocket!

While buying a property and leasing it sounds hugely beneficial (and it is), it’s important to keep in mind that you have enough resources before you begin. A common mistake DIY landlords make is underestimating the amount of capital it takes to renovate, cover unexpected damage, or unexpected legal/eviction fees. F&Z capital can help in the process of investing in real estate from A to Z.