Working as a real estate agent means working closely with your clients. You talk to them, discuss with them, consult with them, give them advice — everything. But simply doing these things is not enough. When you work in an industry where your goal is to help your client find their dream home, your relationship must go beyond business, beyond real estate: There must be genuine friendship.
Rapport establishes trust between you and your client. The more you get to know your client, and the more they get to know you, the easier the process. They can trust that you will find the best home for them or that you will find their house the best buyer, and you can trust them to listen to your ideas and advice. With trust bridging you and your client, you can expect a smoother process and certain success in their real estate endeavor.
2. It earns you respect.
Building rapport means you truly care for your clients. You care about their wants, their needs, their priorities, and their preferences. These things matter when it comes to something crucial as real estate, and when your client sees that you are not neglecting their opinions and thoughts, they will know they made the right choice by choosing you. By doing this, you can earn not only their trust but also their respect.
3. It allows you to practice your skills.
Building rapport with clients also gives you the chance to further practice and enhance your skills. You can practice your communication and social skills, marketing strategies and abilities, logic and reasoning, critical thinking, and more. It also helps that not all of your current and future clients are the same. By spending time getting to know them, you will have time to adjust and cater to their different personalities and preferences as you help them in their real estate endeavors.
4. It can increase sales.
Of course, building rapport with your clients can have an impact on your sales. When a customer ends up happy and satisfied with your real estate services, they can pass that along to someone else, and word-of-mouth advertising can begin to take effect, whether it be through personal communication or social media interaction. People who have heard of you and your great services can come to you for help regarding their real estate endeavors, therefore expanding your clientele, increasing your sales, and widening your connections.
5. It boosts your and your client’s confidence.
This can also boost your confidence as a real estate agent. As you continue to build rapport among current and future clients, you continue to use and improve your skills and help them towards a successful real estate transaction. Every piece of satisfactory feedback, every successful real estate process, and every grateful client is an achievement and undoubtedly brings more inspiration and confidence to your work.
Additionally, in my years of experience, I have noticed that a good rapport between you and your client gives them confidence that you will never let them down — a sense of security that every home seeker must feel toward their real estate agent.
Building rapport is about more than just sealing a deal with a client. If we do it and practice it right as real estate agents, then this can be our ticket to success — and our ticket to amazing relationships.
Here are some tips for building those all-important client relationships:
Communication is the most fundamental part of a relationship with your clients. You are there to explain the more technical aspects of the sale and to keep them up to date with developments. Even if things have slowed down and there isn’t much progress to report, get in touch with your clients and let them know. Find out what their preferred method of communication is and use it to give regular updates. Selling or buying a house is one of the most stressful life experiences we go through. Good communication can help to alleviate that stress for your clients, reassuring them that you have everything in hand.
Meet Face to Face
Technological advances mean there are more ways than ever to stay in touch with your clients. Sending property alert messages, videos of house walk-throughs, and social media platforms all offer new ways to connect with your clients. However, face-to-face interaction is still paramount when it comes to building a trusting relationship. Make use of the technology available to you but don’t neglect old-fashioned communication in the process.
Honesty is the Best Policy
Don’t take your clients for fools. With access to the internet, they have lots of information at their fingertips and can easily expose you to a little white lie. Dishonesty or even just stretching the truth can jeopardize your relationship. Always be completely honest with your clients. You’ll gain their respect and their trust.
Don’t Make Promises You Can’t Keep
Establishing realistic expectations for your clients follows on from this point. While you may want to be optimistic on their behalf, don’t promise the world if you know it won’t be possible. It’s better that clients think things are moving to the timetable discussed, rather than falling behind. You’ll save yourself lots of worried phone calls and emails if you set genuine targets from the offset.
Demonstrate Your Knowledge
Keeping up to date with the latest trends and developments in real estate is a good idea. Find out if there are any courses available in your area or online. Maintaining a blog or social media presence that demonstrates your expertise in real estate is another way to show clients that you know what you’re talking about. It’s a good idea to create a mailing list of current, old and prospective clients who consent to receive emails from you. You can then touch base every month or so with useful real estate information and, in the process, remind clients of you and your services.
Saying Thank You
Don’t cut ties with your clients once the house sale has gone through. Remember that if they trust you, they may well call on you for your services in the future. Offer them a discounted rate should they choose to use you again, send a housewarming gift or just make a phone call to thank them. Ending on a positive, friendly note may mean more business in the future and more recommendations.
Communicating openly and honestly with clients and treating them as individuals rather than your next pay packet should be the cornerstones of your business. Repeat business and lots of referrals will come your way when you build good working relationships with your real estate clients.
Few things are more exciting than leaping from being a renter to being a first-time homeowner. Getting swept up in all the excitement is a wonderful feeling, but some first-time homeowners lose their heads and make mistakes that can jeopardize everything they’ve worked so hard to earn. Following a series of practical steps early in the homeowning experience can save new owners time, money, and effort later down the road.
Don’t Overspend to Personalize
You’ve just handed over a large portion of your life savings for a down payment, closing costs, and moving expenses. Money is tight for most first-time homeowners. Not only are their savings depleted, but their monthly expenses are also often higher as well, thanks to the new costs that come with homeownership, such as water and trash bills and extra insurance.
Everyone wants to personalize a new home and upgrade what may have been temporary apartment furniture for something nicer, but don’t go on a massive spending spree to improve everything all at once. Just as crucial as getting your first home is staying in it, and as nice as solid maple kitchen cabinets might be, they aren’t worth jeopardizing your new status as a homeowner.
One of the new expenses that accompany homeownership is making repairs. There’s no landlord to call if your roof is leaking or your toilet is clogged. To look at the positive side, there’s also no rent increase notice taped to your door on a random Friday afternoon.
While you should exercise restraint in purchasing the nonessentials, you shouldn’t neglect any problem that puts you in danger or could worsen over time. Delay can turn a relatively small problem into a much larger and costlier one. One way to protect yourself against potential maintenance issues is to have a potential home inspected before buying it.
Hire Qualified Contractors
Don’t try to save money by making improvements and repairsyou aren’t qualified to make. This may seem to contradict the first point slightly, but it doesn’t. Your home is both the place where you live and an investment. It deserves the same level of care and attention you would give to anything else you value highly.
There’s nothing wrong with painting the walls yourself, but if there’s no wiring for an electric opener in your garage, don’t cut a hole in the wall and start playing with copper wiring. Hiring professionals to do work you don’t know how to do is the best way to keep your home in top condition and avoid injuring—or even killing—yourself. Also, be sure to check with the local building authority and pull any necessary permits to complete the work.
Get Help With Your Tax Return
Even if you hate the thought of spending money on an accountant when you usually do your tax returns yourself, it can pay off. And even if you are feeling broke from buying that house, don’t scrimp on tax preparation. Hiring an accountant to ensure you complete your return correctly and maximize your refund is a good idea. Home ownership significantly changes most people’s tax situations and the deductions they are eligible to claim.
Just getting your taxes done by a professional for one year can give you a template to use in future years if you want to continue doing your taxes yourself.
Keep Receipts for Improvements
When you sell your home, you can use these costs to increase your home’s basis, which can help you maximize your tax-free earnings on your home’s sale. In 2008, you could have earned up to $250,000 tax-free from the sale of your home if it was your primary residence and you had lived there for at least two of five years before you sold it.
This deduction assumes that you owned the home alone—if you owned it jointly with a spouse, you could each have gotten the $250,000 exemption.1
Let’s say you purchased your home for $150,000 and were able to sell it for $450,000. You’ve also made $20,000 in home improvements over the years you’ve lived in the home. If you haven’t saved your receipts, your basis in the house, or the amount you originally paid for your investment, it is $150,000. You take your $250,000 exemption on the proceeds and are left with $50,000 of taxable income on the sale of your home.
However, if you saved all $20,000 of your receipts, your basis would be $170,000, and you would only pay taxes on $30,000. That’s a considerable saving. In this case, it would be $5,000 if your marginal tax rate is 25%.
Repairs vs. Improvements
Unfortunately, not all home expenses are treated equally to determine your home’s basis. The IRS considers repairs to be part and parcel of homeownership, which preserves the home’s original value but does not enhance its value.
This may not always seem true. For example, if you bought a foreclosure and had to fix a lot of broken stuff, the home is worth more after you fix those items, but the IRS doesn’t care—you did get a discount on the purchase price because of those unmade repairs, after all. It’s only improvements, like replacing the roof or adding central air conditioning, which will help decrease your future tax bill when you sell your home.
For gray areas (like remodeling your bathroom because you had to bust open the wall to repair some old, failed plumbing), consult IRS Publication 530 or your accountant. And on a non-tax-related note, don’t trick yourself into thinking it’s OK to spend money on something because it’s a necessary “repair” when in truth, it’s a fun improvement. That isn’t good for your finances.
Get Properly Insured
Your mortgage lender requires you not only to purchase homeowners insurance but also to purchase enough to fully replace the property in the event of a total loss. But that’s not the only insurance coverage you need as a homeowner.
If you share your home with anyone who relies on your income to pay the mortgage, you’ll need life insurance with that person named as a beneficiary so that they won’t lose the house if you die unexpectedly.
Also, once you own a home, you have more to lose in the event of a lawsuit, so you’ll want to make sure you have excellent car insurance coverage. If you are self-employed as a sole proprietor, you may want to consider forming a corporation, which will give you significant legal protection of your assets.
You may also want to purchase an umbrella policy that picks up where your other policies leave off. If you are found at fault in a car accident with a judgment of $1 million against you and your car insurance only covers the first $250,000, an umbrella policy can pick up the rest of the slack. These policies are usually issued in units of $1 million.
The Bottom Line
With the great freedom of owning your own home comes significant responsibilities. It would help if you managed your finances well enough to keep the house and maintain the home’s condition well enough to protect your investment and keep your family safe. Don’t let the excitement of being a new homeowner lead you to bad decisions or oversights that jeopardize your financial or physical security.SPONSOREDStart with $30 trading bonusTrade forex and CFDs on stock indices, commodities, stocks, metals and energies with a licensed and regulated broker. For all clients who open their first real account, XM offers a $30 trading bonus to test the XM products and services without any initial deposit needed. Learn more about how you can trade over 1000 instruments on the XM MT4 and MT5 platforms from your PC and Mac, or from a variety of mobile devices.
The benefits of investing in real estate are numerous. With well-chosen assets, investors can enjoy predictable cash flow, excellent returns, tax advantages, and diversification—and it’s possible to leverage real estate to build wealth.
Thinking about investing in real estate? Here’s what you need to know about real estate benefits and why real estate is considered a good investment.
Real estate investors make money through rental income, appreciation, and profits generated by business activities that depend on the property.
The benefits of investing in real estate include passive income, stable cash flow, tax advantages, diversification, and leverage.
Real estate investment trusts (REITs) offer a way to invest in real estate without having to own, operate, or finance properties.
Real estate investors make money through rental income, any profits generated by property-dependent business activity, and appreciation. Real estate values tend to increase over time, and with a good investment, you can turn a profit when it’s time to sell. Rents also tend to rise over time, which can lead to higher cash flow.
This chart from the Federal Reserve Bank of St. Louis shows average home prices in the U.S. since 1963. The areas shaded in grey indicate U.S. recessions.4
Build Equity and Wealth
As you pay down a property mortgage, you build equity—an asset that’s part of your net worth. And as you build equity, you have the leverage to buy more properties and increase cash flow and wealth even more.
Another benefit of investing in real estate is its diversification potential. Real estate has a low—and in some cases negative—correlation with other major asset classes. This means the addition of real estate to a portfolio of diversified assets can lower portfolio volatility and provide a higher return per unit of risk.
Real Estate Leverage
Leverage is the use of various financial instruments or borrowed capital (e.g., debt) to increase an investment’s potential return. A 20% down payment on a mortgage, for example, gets you 100% of the house you want to buy—that’s leverage. Because real estate is a tangible asset and one that can serve as collateral, financing is readily available.
Competitive Risk-Adjusted Returns
Real estate returns vary, depending on factors such as location, asset class, and management. Still, a number that many investors aim for is to beat the average returns of the S&P 500—what many people refer to when they say, “the market.” The average annual return over the past 50 years is about 11%.5
The inflation hedging capability of real estate stems from the positive relationship between GDP growth and the demand for real estate. As economies expand, the demand for real estate drives rents higher. This, in turn, translates into higher capital values. Therefore, real estate tends to maintain the buying power of capital by passing some of the inflationary pressure on to tenants and by incorporating some of the inflationary pressure in the form of capital appreciation.
If you want to invest in real estate, but aren’t ready to make the jump into owning and managing properties, you may want to consider a real estate investment trust (REIT). You can buy and sell publicly-traded REITs on major stock exchanges. Many trade under high volume, meaning you can get into and out of a position quickly. REITs must pay out 90% of income to investors, so they typically offer higher dividends than many stocks.6
The Bottom Line
Despite all the benefits of investing in real estate, there are drawbacks. One of the main ones is the lack of liquidity (or the relative difficulty in converting an asset into cash and cash into an asset). Unlike a stock or bond transaction, which can be completed in seconds, a real estate transaction can take months to close. Even with the help of a broker, it can take a few weeks of work just to find the right counterparty.
Still, real estate is a distinct asset class that’s simple to understand and can enhance the risk-and-return profile of an investor’s portfolio. On its own, real estate offers cash flow, tax breaks, equity building, competitive risk-adjusted returns, and a hedge against inflation. Real estate can also enhance a portfolio by lowering volatility through diversification, whether you invest in physical properties or REITs.
Real estate agents work with clients to help them buy, sell or rent real estate, including office buildings, houses and land.
Do you need to hire a real estate agent? Here’s a breakdown of a real estate agent’s key roles and duties to help you understand what a real estate agent is, what they do and the benefits of hiring one for your business.
What does a real estate agent do? An overview
Real estate agents are licensed professionals who typically work under the supervision of a real estate broker. Whether you’re in the market to buy or sell a property, they are trained to guide you through every phase of a sale, from scouting out properties to closing the deal.
Though some of the responsibilities of a real estate agent change based on if they’re working with a buyer or a seller, the general duties of all real estate agents include administrative work, research and marketing.
Answer phone calls and emails
Schedule appointments and showings
Update property listings
Draft and deliver documents
Perform real estate market analysis
Stay current with real estate markets, trends and best practices
Search open listings to find properties
Create and distribute promotional material
Manage their online and social media presence
Network with potential clients and local businesses
Run advertising campaigns
Build a blog or website
What does a real estate agent do when selling real estate properties?
A real estate agent who helps owners sell a property may also be referred to as a seller’s agent or listing agent.
When a seller wants to put their property up for sale, they’ll generally contact a real estate agent to act on their behalf. With the seller’s best interests in mind, the real estate agent will use their knowledge of the market to accurately price the property, list it and market it to potential buyers.
In working with sellers, a real estate agent may perform the following key roles and duties:
Prepare comparative market research analysis to establish a realistic asking price (beyond what an online estimator can do)
Identify which assets are a property’s top selling points for that neighborhood, plus pinpoint the best places to invest money in improvements
Stage the property to make it appealing to buyers
Photograph the property, inside and out
List the property on the local Multiple Listing Service (MLS)
Advertise real estate properties to gain the attention of prospective buyers
Supervise and/or schedule property showings and open house events
Draft and prepare documents, such as offers, contracts and closing statements
Communicate with appraisers, escrow companies, lenders and home inspectors
What does a real estate agent do when working with buyers?
A real estate agent who helps clients buy a property is sometimes called a buyer’s agent or selling agent.
Buyers will often turn to real estate agents when they’re in the market to buy a property, such as a home or a new office space. Because real estate agents typically know the ins and outs of the real estate market, they can use their expertise to match the buyer with a property best suited for their needs and wants.
Here are some of the key roles and responsibilities of a real estate agent when working with buyers:
Coordinate and oversee open houses
Arrange meetings with prospective buyers
Interview buyers to understand what they’re looking for in a new property
Schedule property showings
Coordinate appraisals and inspections
Negotiate property repair requests and offers on behalf of the buyer
Draft and review documents and contracts
Guide buyer through the closing process
Benefits of hiring a real estate agent
Whether you’re looking to rent or buy an office for your business, sell a piece of property or build up your real estate staff, there are several benefits to hiring a real estate agent:
Real estate agents are qualified and licensed. Though requirements vary by state, becoming a professionally licensed agent involves taking courses and passing a state exam.
They have connections with others in the industry and community, such as title companies, appraisers, inspectors, landscapers and contractors. Because of this, real estate agents know who might be your best bet for your needs, and can get you in touch with the right contact.
Real estate agents understand the market and current trends, including property prices and the community. This insight can help you make the right decisions without extensive research on your part.
FAQs about real estate agents
Do real estate agents need a license?
Becoming a real estate agent generally requires a state license. While each state has different requirements for earning a real estate license, basic qualifications can include a high school diploma and passing a background check.
How do I find a good real estate agent?
Are you buying or selling a property? Or are you hiring a real estate agent for your business?
If you’re looking for a real estate agent, run an online search for agents in your area and read online reviews. Ask for recommendations from others who have recently worked with a real estate agent. When you find a potential match, meet with them in person to get a better feel for who they are and their experience.
If you want to hire a real estate agent, write a standout job description to attract the most qualified candidates. Some qualifications to look for include a real estate license, experience with CRM software and strong communication skills.
How do you interview a real estate agent?
Before interviewing a real estate agent – whether a phone screen or in-person interview – thoroughly review their resume and keep it on hand for easy reference.
Finding the right agent is the key to a smooth transaction.
These days, choosing a Realtor can feel like picking a needle from a haystack. There are so many options to choose from that many buyers and sellers wonder how they can zero in on the professional who will best meet their needs.
In light of that, we’ve created a list of tips for finding a real estate agent you can trust. Read on below to get a sense of what qualities you should look for in a Realtor and what the process is for finding the estate agent that’s right for you. With any luck, these tips will help lead you to your perfect match.
What should you look for in a Realtor?
Before we get started discussing how to find the right real estate agent, it’s important to take some time to think about what qualities make for a good buyers agent or listing agent. That way, you’ll know what to look for when it comes time to narrow down your choices.
Licensing and certifications
The first thing to consider is what licensing and certifications each agent has under their belt. At the very least, everyone you consider should be licensed as a real estate agent in your state.
Beyond that, you may want to look for someone who is a Realtor, rather than simply being a real estate agent. Agents who are designated as Realtors are part of the National Association of Realtors (NAR). As a result, they have to adhere to a strict code of ethics during every transaction.
If you want to take things even further, some agents also have specialized certifications. For example, some are “senior real estate specialists,” meaning they have taken specific courses on how to guide senior citizens through housing transitions. Other agents have a Green designation, which means they have a focus on sustainability.
Next, you’ll want to consider the agent’s experience level. Particularly for first-time buyers and sellers, it’s important to have someone in your corner who’s familiar with the process, and that familiarity comes with experience. Typically, this information should not be hard to find. Many agents will highlight their experience level on their website and other marketing materials as part of their digital marketing strategy.
Local market knowledge
In addition, you should try to hire an estate agent who is familiar with the state of your local real estate market. Truthfully, the techniques behind buying and selling will differ depending on whether you’re in a buyer’s market or a seller’s market. Any agent worth their salt should be able to guide you through current market conditions and help you set yourself up for success.
The last criteria you should look toward is the agent’s availability. In most cases, real estate markets move very fast. When a property comes up that you think might be a good fit, you have to be ready to make an offer. With that in mind, you should focus on choosing a real estate agent with whom it is consistently easy to get in touch.
How can you find a Realtor you can trust?
Now that you know what to look for in a real estate agent, the next step is to work on finding one who is the right fit for you. This section will cover how to go about finding your top picks from a sea of possibilities.
Ask for referrals
Often, the first step to finding a buyer’s agent or listing agent is to ask around for referrals. While your family and friends who have recently gone through the process of buying a house are great places to start, your lender is also a good resource.
Whoever you end up asking, be sure to gather information on what they liked about their real estate professional, whether there was anything they didn’t like, and why they feel the agent is worth recommending.
Do your own research
From there, the next step is to do some research on your own. These days, most buyer’s agents and listing agents will have a fully fleshed-out internet presence. Take the time to go over their website, review their social media, and carefully read any online reviews or testimonials. Based on that information, you should be able to get some sense of whether you like what that particular agent has to say.
Interview your top choices
From there, you can start to work on putting together a shortlist of candidates. Ideally, you should be able to come up with two or three real estate agents you feel might be a good fit for you.
Once you have a few agents in mind, call them up or email them to ask to schedule a time to interview them. Any agent who’s been in the business for a while knows that interviewing is part of the hiring process, so most should be happy to talk to you and answer any questions you may have.
However, if an agent gives you push back on this, it’s generally a red flag. After all, odds are you’ll want to hire someone who will communicate with you throughout the entire buying or selling process. With that in mind, if you don’t get a positive response to your request, don’t hesitate to move on to other options.
How do you interview a potential Realtor?
Out of all the steps in the process of finding a buyers agent or listing agent, the interview is arguably the most important. This is where you’ll truly be able to get a sense of each agent’s personality and be able to determine which one is the right fit for you. With that in mind, follow the steps below to ensure a productive and enlightening interview:
Be honest about your needs
Start the interview by telling each real estate agent about who you are and what your needs may be. Think beyond the obvious issue of needing to buy or sell your home and get specific.
If, for example, you’re moving for a new job, mention that you’re on a semi-tight timeline. If, on the other hand, you’re specifically looking to sell your home as-is, you’ll want to be upfront about that as well.
Listen to their pitch
Real estate agents need to know how to sell themselves to potential clients, so most real estate professionals have perfected their sales pitch. The good ones, however, will know how to tweak their pitch to tailor it to your needs. Listen with an open mind, but evaluate how well the information seems to suit your needs.
After you’ve both had the chance to talk, take the time to ask questions and listen to the agent’s responses. Keep in mind how satisfied you feel with each answer.
If you aren’t quite sure what to ask, we’ve compiled a list of suggestions below:
How many years have you been in the real estate industry?
On average, how many transactions do you close per year?
Do you have any designations that set you apart?
Are you a full-time or a part-time agent?
Are you part of a team? If so, who will be my main point of contact?
How will you find properties that meet my criteria?
What is your plan for marketing my listing for sale?
How does your commission work? What do you typically charge?
How can I exit your contract if I’m not satisfied?
Review their contract and marketing materials
In most cases, your best bet is to wait to make your final decision until after the interview. The majority of agents will come with marketing materials in addition to their contract. You should take the time to review them all carefully before ultimately deciding who to use.
Making your final decision
Once it’s time to choose your real estate agent, our advice is simple: Go with your gut. At this point, you’ve done your research and should have a firm idea of how each of your top candidates handles their business. Ultimately, you should choose the one you trust the most, the one you believe will have your best interests in mind when selling your home or helping you buy a new one.
Keep in mind, too, that if it turns out you made the wrong decision, you can always switch, or buy a house without a real estate agent. Most real estate agency contracts have fairly simple exit clauses. Be sure to ask each agent you interview about theirs so you’ll know what your options are if you end up wanting to make a change.
The bottom line
The process of picking the right real estate agent for you may feel overwhelming, but it doesn’t have to be that way. With a little legwork on your part, you should be able to streamline this process into a few simple steps. Use the tips above as your guide to help you along the way. With any luck, it won’t be long until you find an estate agent who will be on your side.
1. Use a trusted realtor. We all know that realtors get a cut of the sales price of a home which makes some buyers hesitant to use a realtor: they believe it drives up the overall cost. Keep in mind that the seller, not the buyer, pays the commission. Brooke Willmes, real estate agent at SPACE & COMPANY in Philadelphia, says that potential buyers should keep in mind that a listing agent (the agent representing the seller) doesn’t protect your interests and “that agent would simply pocket both sides of the commission.” That means that you’re not saving money. A savvy realtor who works for you can protect your interests and guide you through the buying process – from negotiating a price to navigating home inspections.
2. Remember that a house purchase involves a contract. When you’re buying a house, there are papers to sign. And more papers to sign. Many of those papers – which are actually contracts – look like “standard” home buying contracts with no room for negotiation. That isn’t true. Contracts are meant to be negotiated. You don’t have to sign a standard agreement. If you want more time to review your inspection, wish to waive a radon test or want to make a purchase subject to a mortgage approval, you can make that part of the deal. That’s where a savvy realtor can help. See again #1.
3.Don’t necessarily buy for the life you have today. Chances are that buying a house will be one of the bigger financial commitments you’ll make in your lifetime. Before you agree to buy what you think might be your dream house, consider your long-term plans. Are you planning on staying at your current job? Getting married? Having kids? Depending on the market and the terms of your mortgage, you may not actually pay down any real equity for between five and seven years: if you aren’t sure that your house will be the house for you in a few years, you may want to keep looking.
4.Think about commitment. I’m not talking just about your mortgage. When you get married, the laws of your state generally determine how your assets are treated – and ultimately how they’re distributed at divorce. The same rules don’t necessarily apply when you’re not married. That means you need to think long term. When you buy a house with your significant other who is not your spouse, make sure you have an exit plan if things don’t go the way you hope. It’s a good idea to have an agreement in place with respect to titling, mortgage payments and liability, repairs and the like: it’s best to get it in writing (and yes, I’d recommend getting a lawyer).
5.Look beyond paint. It’s often the case that your dream house has that one room that you’re already fantasizing about changing. Willmes says to remember that it’s fairly inexpensive to fix cosmetic issues (a bit of paint or some wallpaper) but making changes to kitchens and baths can be expensive. She says, “People tend to focus on the cost of cabinets, appliances and counters but sometimes forget about the cost of labor which can double to triple the cost.” That doesn’t mean that you should give up on a house in need of a significant fix but you should factor in those costs when determining whether you can afford to buy.
6.Buy the house you know that you can afford. This can be different from the price that your mortgage company believes that you can afford. When my husband and I bought our first house, we were approved for a mortgage of about three times more than we ultimately ended up spending. Fresh out of law school and working for established firms, our finances looked good on paper. But we dialed back our expectations because we weren’t convinced that our income and expenses would remain at those levels. We were right: two years later, we started our own business just as the economy turned south. The less expensive house meant that we could still make our payments even with less income in our pocket. So what’s the best ratio to use? Some lenders suggest that you can afford mortgage payments totaling about 1/3 of your gross income but others suggest closer to 28% for housing-related costs including mortgage, insurance and taxes. There are a number of factors including your projected income, interest rates, type of mortgage and the market. Ask your mortgage broker to help you understand what’s in play.
7.Don’t fixate on the purchase price.The purchase price is just one piece of owning a house: be sure to consider all of the costs associated with your potential new home. That includes the cost of insurance, homeowner association fees and real estate taxes – depending on where you live, those can quickly add up. And it’s not just home improvements that can cost money: maintenance costs dollars, too. It’s a good idea to ask questions about upkeep for extras like swimming pools, fancy heating and cooling systems and outbuildings. Finally, Willmes suggests that you make sure you’re comparing apples to apples: a condo with a large fee that’s priced low may be more costly than a higher-priced one with lower fees while a cheap home with high taxes may cost you more a month than a more expensive one with lower taxes.
8.Consider your student loan debt. Following the housing crisis, lending laws tightened. Student debt isn’t merely an annoyance: it’s treated like real debt. Jason Griesser, a licensed Prospect Mortgage Branch Manager in PA, explains that a major revision to FHA guidelines in 2015 negatively affects many first-time homebuyers with student loan debt. Prior to this change, a borrower with student loans deferred for more than 12 months could discount that debt from their liabilities: now, for purposes of determining purchasing power, a borrower is charged with 2% of the outstanding balance of the student loan regardless of deferment status (in a non-FHA, or conventional loan, it’s just 1%). If your student loan is in deferment and you’re planning on buying a home, Griesser suggests enrolling in a properly documented income-based repayment plan so you have the documents your lender will need to properly assess your ongoing liability.
9. Don’t get carried away by the home mortgage interest deduction. Many taxpayers are tempted to buy more houses than they can afford by figuring that they’ll save enough with the home mortgage interest deduction to make up for it. The mortgage interest deduction is only deductible if you itemize on your Schedule A: only about 1/3 of taxpayers claim the itemized deduction. You itemize if your deductions exceed the standard deduction: for 2015, the standard deduction rates are $12,600 for married taxpayers filing jointly and $6,300 for individual taxpayers (those rates stay put for 2016). Assuming that you do itemize, remember that your out-of-pocket will still be more than your tax savings (if you’re in a 28% bracket, paying $5,000 more in interest will only “save” you $1,400 in taxes). And you can’t count on the same level of savings forever: mathematically, the longer you own your house, the less you will owe in interest. That’s good for building your equity but it means a smaller deduction come tax time.
10. You don’t have to buy a house. There’s no rule that says you have to buy a house by the time you’re 35 – or ever. Buying a home is a big decision and while it can be a sound financial investment, it’s not for everyone. There is a lot to consider, including the housing market, interest rates, timing and your future plans. You might want more flexibility or mobility, or your career and family plans may be in flux. If you’re not sure about a neighborhood, consider renting as a test drive: a realtor can help you with that, too (see again #1). Even then, you don’t have to pull the switch: there are healthy rental markets throughout the country and in some areas, young professionals are choosing rentals over homebuying to preserve cash and remain mobile. That’s showing in the stats: last year, the U.S. Census Bureau reported that the homeownership rate was 64.9%, not counting borrowers in risk of default. In contrast, ownership in 2010 was nearly 69% (downloads as a pdf): for purposes of context, a one-percent change in the ownership represents well over a million homeowners. For more on the decision to buy versus rent, check out my book, Home, Sweet Rental: Busting The Hype Of Homeownership, available on Amazon.
Are you on the fence about buying in 2021? This post will offer some clarity. If you’re looking for a comparison of renting vs buying that goes into detail about how buying vs renting a home will affect your finances in 2021, you should read to the end. We’ll look at what you should consider before buying a home or renting, and some stats on rent versus buy across US major cities.
Overview of Renting in 2021
The real estate rental market is an oddball. It is difficult to predict that in 2020 many millennial renters would take advantage of low mortgage rates to become homeowners, causing a strong imbalance between supply and demand. On the other hand, prices and intense competition for homes have driven some high income, would-be home owners into becoming renters out of necessity.
But high income renters snapping up single family rentals and multifamily apartments isn’t a new trend.
Based on a report by Rentcafe, between 2007 and 2017, more than 1.35 million people, earning $150,000 per year switched to renting – that is a 175% increase. During this ten year period, the number of renter-occupied households earning over $150K per year multiplied 7.4 times. Also, the number of high income tenants in Charlotte, NC grew by 400%.
In 2020, rental demand also took an unexpected curve as many people moved away from big cities like San Francisco and Seattle for more affordable housing. Before the Covid-19 pandemic, rents at these tech hubs were exorbitant with relentless demand. But with the adoption of remote work and telecommuting, the demand shifted to the suburbs closest to these big cities.
As companies open up fully and rental demand picks up in these cities, rent prices pick back up. Nationwide, rents have risen in almost all of the biggest metros. Zumper reports that in July, the National Rent Index rose 7 percent year-over-year for one-bedroom apartments and a staggering 8.7 percent for two-bedroom apartments.Rents are likely to continue to rise as new home construction has fallen well short of the 4.6 million units needed per year. Demand for rental properties, especially from high-income earners, is driving rent beyond the reach of low-income earners.
Let’s consider the case for renting:
1. While rent prices have increased, home prices have appreciated since 2020 at almost unbelievable rates. In some markets, home buyers are rushing foolhardy into deals because of bidding wars. Asides from that, buying a home requires that you have enough money to cover not only your down payment but closing costs, PMI, realtor fees, legal, inspection, and appraisal fees. You also need to spend money on property maintenance including HOA dues.
2. With renting, you aren’t tied to a particular place for years. This is one of renting’s appeals to young millennial professionals. The ability to work from anywhere has led to a number of millennials migrating to places like Honolulu for short term rental stays. Of course, you can also take long vacations if you own your own home, but it just doesn’t offer enough flexibility as renting.
Buying a Home – 2021 Overview
It is no news that home prices have appreciated above expert forecasts in 2020 and 2021. According to Zillow data, the typical seasonally adjusted value of a median single-family home in the United States in June 2021 is $293,349. This is up 15% from a year ago, and Zillow expects prices to appreciate even more, by 13.2%, in June 2022. Read more about what to expect in the 2022 real estate market.
Buying a home is part of the American dream. However, if you’re thinking about buying a home in 2021, you may want to be a bit more cautious, as mortgage rates are rising, homes are selling above fair market value and banks are demanding higher down payments.
So should you rent or buy in 2021? Let’s consider the pros of buying a home in 2021.
1. Mortgage rates are still low. Even though mortgage rates have been predicted to pass the 3.25 mark by the end of 2021, they are still currently low. In May 2021, according to Freddie Mac, interest rates on 30-year loans averaged 2.96%. But they won’t stay that way.
One of the disadvantages of waiting to buy a home is that price appreciation could slow, but mortgage rates could rise. However, in 2021, mortgage rates have gone up and down: there has not been a steady upward trend. Overall, a sharp rise in rates is unlikely.
2. Home equity is strong. As home values rise, so do home values in many markets. Even for people who have defaulted and face the threat of foreclosure, home values may offer leverage. The possibility of gaining from home appreciation is one of the best arguments for buying a home in 2021.
3. Freedom. If you own your home, you are free to design and upgrade it any way you want. Whether you’re looking for more space, better insulation, or want to give the kitchen an upgrade – you can make your home fit your lifestyle – of course as long as you don’t break HOA rules. This sense of ownership and freedom to customize your home make owning a house more desirable than renting.
While these sound great, you should consider the current renting vs buying landscape. The fact is, if you were bidding on a house in any market in the US Right now, you probably aren’t the only one bidding on the house. Currently, there are more buyers than listings and this means there will be bidding wars. In many cases, you will compete with cash offers. ATTOM Data Solutions reports that cash offers account for over a quarter of all home purchases these days.
Is it Better to Rent or Buy in 2021? Considerations
One of the major factors driving the renting vs buying debate is affordability: Is buying really cheaper than renting?
There are no quick and fast answers. Attom Data’s 2021 rental affordability report showed that owning a median-priced three bedroom home is more affordable than renting a median-priced 3 bedroom home in 63 percent of 915 US counties. However, this research was conducted in 2020. Also. it does not take into account the fact that people who pay less than 20% down will pay more in mortgage payments each month.
Based on an article on TheMortgageReports, “In 2019, the National Association of Realtors found that the average down payment on a house or condo was just 12%. For first-time home buyers, that number drops to 6%. And many people put down even less money — or no money at all.”
If, according to the NAR, the median price of a home is $350,300, with a 6% down payment requirement, you’ll be paying $21,018 down. Conversely, a 20% down payment would offer you a better rate and an opportunity to forego PMI (private mortgage insurance). But you’ll need to have saved up to $70,060.
If you’ve been saving up to buy a home in 2021, how about first comparing the cost of owning versus the cost of renting? Nerdwallet has a renting vs buying calculator to help you compare which of renting vs buying will be the best fit for your situation.
In most cases, you need to consider some things as you examine renting vs buying pros and cons. You want to ask the following questions:
1. How long am I staying in the area?
2. What are the current mortgage rates? and what are the terms of the mortgage?
3. Are home values appreciating in the area? Will they continue to appreciate in the future?
4. Am I willing to spend money and effort on routine home maintenance?
5. How much of my taxes can I deduct as a homeowner?
Although you shouldn’t hinge your rent versus buy decision on cost – you want to consider convenience and lifestyle too. But the cost is an important consideration.
Ongoing costs for renters include; rent, renter’s insurance, utilities (electricity, gas, water, cable,…) – some landlords could include utility costs in the rent.
At the start of your tenancy, you have to pay a one time security deposit. The security deposit varies by state. In most states, it is usually one or one and a half month’s rent. Some landlords also charge additional fees for garbage pickup, pest control, and parking.
When buying a home, you’ll pay a one time closing cost, which will include your mortgage origination fee, plus a one-time down payment. Ongoing costs include your mortgage fee plus PMI (private mortgage insurance), property tax, HOA fee, utilities, and home insurance. You might also need to spend money on routine home maintenance and renovation tasks. Let’s look more closely at the questions above.
Are home values appreciating in the area? Will they continue to appreciate in the future?
Right now, there is a fear of missing out as low supply drives fierce competition for available homes. Economists have compared this to the 2006-2007 buying frenzy. But compared to 2007, when many people who rushed to buy a home due to attractive mortgage terms lost their homes to foreclosures and bankruptcies, home equity is currently strong.
A lending institution owns a portion-or the entire-of home if part or all of it was purchased via a mortgage loan. Equity refers to the portion of a home’s current value that an owner possesses at any given time. Note that larger down payments on a home confer a homeowner with more home equity than a smaller downpayment.
With consistent mortgage payments, every month and a strong market, the values of many homes have increased in 2021. With that, equity has risen much faster compared to the 2007 period.
Approximately 62% of all homeowners have mortgage loans, according to the report, and their equity increased by 19.2% between 2020 and 2021. Across the United States, the collective gain reached $1.9 trillion.
How is home equity calculated?
Most equity calculations are based on the current market value appraisal of the property and are largely dependent on demand and supply factors. let’s say you buy a house for $200,000 ten years ago with a 20% downpayment on your mortgage. For a 30 year mortgage, and at a 3.8% interest rate, you’ll be paying a $943 mortgage. If in 10 years $50,300 of payments are applied to the principal
Over those ten years, if property prices appreciate in your area by $200,000, you’ll have equity of:
Downpayment (40000) + mortgage payments (applied to principal) + home appreciation = $40000 + $50,300 + $200000
That is $290,300.
On the other hand, if you invest in the wrong location over a long stretch of time, homes may depreciate in value. This was what happened in 2007 when many people lost their homes as home values in many places depreciated. And people who defaulted on their mortgage payments had nothing to fall back on.
As a homeowner, you can use home equity in the form of an additional line of credit or home equity loan (second mortgage) to purchase other properties for investment or to finance large home renovations.
Renting gives you no equity. You contribute to your landlord’s equity by paying rent. However, there are arrangements like rent-to-own that provide the option to buy a property after your lease is over. But these deals can be risky, so you should proceed with caution.
What are the current mortgage rates? and what are the mortgage terms?
If you’re not buying a home with cash, you should definitely consider how current mortgage rates affect you and whether taking out a mortgage might be better than renting.
In 2020, a significant number of millennials bought new homes because interest rates were low. Interest rates are still low but definitely not as they were in 2020. And rates keep rising as the economy improves.
Currently, in 2021, homes are in short supply. This means you should expect to pay more for a home than fair market value in the face of competing offers and homes selling in 3 weeks.
Nerdwallet predicts that the 2021 fourth quarter rate for a 30 year fixed rate mortgage will average 3.3%. If you bought a home in January, the average mortgage rate for the same type of mortgage was 2.842%. Let’s compare how your payments will change in both cases if you were buying at the current median price of $329,000:
If you bought a home in January and could afford to pay a 20% downpayment, you’ll currently pay $1,370 monthly. But if you’ll be buying when mortgage rates hit 3.3%, under the same conditions you’ll pay $1,435 monthly. That’s a $65 difference – not much! But consider that you’ll pay this difference for the entire term of the loan (30 years).
Your mortgage payments will also vary by the type of mortgage you opt for. Across the board, 30 year fixed mortgages are the most popular and also the most recommended. With 15 year fixed mortgages and adjustable-rate mortgages, expect to pay more monthly.
ARMs allow you to pay a fixed rate for a specific introductory period, which can last for 7 to 10 years. During the introductory period, you typically get a lower interest rate than you would with a fixed-rate loan. Upon expiration of the introductory period, your interest rate will follow market rates. You can expect the interest rate on an ARM to rise or fall up to a certain limit over the course of the loan. There are also jumbo loans that do not conform to lending limits set by Fannie Mae. But these are usually tough to get.
Generally, whether for fixed rate or adjustable rate mortgage, Your loan’s principal is large at the beginning, and the majority of your payments go to interest. In return, you pay less in interest as you reduce your principal over time. An amortization schedule will reflect consistent monthly payments and will help you pay off your loan on time.
Another thing to know in 2021 is that lenders are going to take a closer look at your ability to pay. To get pre-approved for a mortgage, your income, debts, employment, and financial accounts will be scrutinized. With lingering Covid-19 uncertainty and the economy still recovering, lenders have imposed stricter mortgage standards. Therefore mortgage applications will usually require larger down payments and higher credit scores.
Renters do not have to worry about these. And it’s not uncommon for renters with bad credit scores who wish to buy homes, to rent for a while as they work on rebuilding their credit.
Am I willing to spend money and effort on routine home maintenance?
One of the advantages of owning a home is that you get to design and improve your home as you see fit (keeping with HOA rules). But, financially comparing renting vs buying, you might pay more than 2 months of rent on home maintenance and emergency expenses. According to Homeadvisor, every year, the average homeowner spends $3,192 on maintenance and another $1,640 on emergency expenses.
The rule of thumb is to budget between one percent and three percent of your home’s purchase price for typical maintenance each year. You should set aside three percent per year if you are thinking about renovating your home or if you have an older home. For a home priced at $300,000, you may need to set aside up to $9,000 if you were going to renovate.
If you are buying a fixer upper or have to waive the maintenance, you’ll need to budget a lot more to get the home in tip-top condition. Generally, the following are the most common types of home maintenance issues: air conditioning and HVAC (heating, ventilation, and air conditioning) issues, doors (not opening or closing), a clogged toilet, clogged or leaking sink pipes, bathtub issues.
Randomly, you may have to deal with unexpected emergencies like broken windows, paint peeling, etc. Your budget on home maintenance and renovation will therefore likely vary each year. The costs of home maintenance add up if you plan to stay in your home for ten or more years.
During winter especially, you need to be more proactive with home maintenance and routine checks. Your doors and windows should be draught-proof to prevent warm air from escaping and cold air rushing in, your heating system might also need to work overtime. It’s essential that you keep an eye on energy consumption during this time by installing an energy monitor. You’ll need to clear gutters and driveways and improve your home’s curb appeal.
Asides from these maintenance costs, there are also homeowner association dues which range from between $200 to $400 per month. For upscale buildings, expect to pay more in HOA fees. HOA dues could cover lawn care, sewage, trash removal, etc.
As a renter, unless otherwise stated in the rental agreement, your landlord is responsible for handling property maintenance tasks and HOA fees. And if you’re a landlord, see this checklist for rental property maintenance.
How much of my taxes can I deduct as a homeowner?
As long as you keep paying the mortgage on your home, you can take advantage of the mortgage interest deduction. Up until recently, home owners were able to deduct up to $1 million in mortgage interest. Due to the Tax Cuts and Jobs Act, however, this limit is reduced from $1 million to $750,000 for a single or married couple filing jointly. Married couples filing separately can deduct $375,000 each.
On a second mortgage, home equity loan, or home equity line of credit, you can also deduct interest payments. It is important to remember that you can only claim this deduction if you borrowed the funds to pay for a home improvement.
Other deductions for homeowners and property investors include:
Property taxes: Married couples filing jointly can deduct up to $10,000 in property taxes; singles and married couples filing separately can deduct $5,000 in property taxes.
Discount points: Sometimes lenders offer homeowners the option to reduce their interest rate by purchasing prepaid interest or discount points. Points purchased to reduce a mortgage’s interest rate are tax deductible.
Home office: Depending on the size and functionality of your home office space, you can deduct some of the expenses that come with having a home office. However, the space should be used exclusively and regularly for business purposes.
Home improvements: If you make necessary medical upgrades to your home e.g. to improve accessibility by installing hand railings, you can deduct the cost of these upgrades.
While not comparable to the tax benefits of buying a home, some states offer renters tax credit. For cost burdened renters, depending on your state, you may be able to claim a credit if your rent is above 30% of income. As an example, in New Jersey, you can either qualify for an 18% deduction from rent paid, up to $15,000, or a refundable credit of $50 on your tax return.
Length of stay
How long am I staying in the area for?
A 2013 statistic from the National Association of Home Builders (NAHB) showed that the average buyer stays 13 years in a home.This length of stay has remained the same through 2018, based on data from the 2018 1-year American community survey. A first-time buyer’s average stay in a single-family house is somewhat shorter (about 11 and a half years, compared to 15 years for buyers who have owned a house before).
But people spend more time in some neighborhoods than others. Based on a recent research by the NAR, homeowners spent up to 8 years in the following areas.
These metro areas, in contrast, have homeownership duration of 16 years or more:
According to the data, the median length of homeownership in many of the fastest-growing metro areas was the lowest. On the other hand, places that have experienced slow population growth have longer homeownership durations.
What about renting? Recent research by Renterrated, a renter satisfaction survey program, puts the average length of stay for renters at 27.5 months (less than 3 years). There are also variations in stay length based on location. The average rental stay in the northeast is 32.9 months. The South has the shortest average rental stay at 24.3 months.
Nowadays, with the preponderance of short term AirBnB rentals and vacation rentals, renters are free to up and leave for months. So an important question to ask when you’re considering renting vs buying is, would I have to move a lot due to work or other reasons?
Is Buying Really Cheaper Than Renting? Rent vs Buy Stats
Now let’s look at the stats comparing buying vs renting a home costs in the nation’s biggest metros. Note that while home prices have risen in almost all the big metros, some slowly, renting have moved in both directions – rent has declined in some cities but appreciated at a fast pace in others.
But which is cheaper? to buy or rent?
A March 2021 report by Realtor.com’s research team sheds light on this. They compared renting vs owning in 50 of the nation’s largest metro areas to see where buying beats renting, and vice versa.
They found that only 15 of the 50 metros favored buying. In those metros, on average, the cost of buying a house is the same as or less than renting.
Renting beats buying in the majority of metro areas that they examined. In light of rising home prices in the U.S. in recent years, which have eroded purchasing power, such a trend is not surprising. The top 5 places where the math favors buying over renting include:
1. Cleveland-Elyria, OH
2. Pittsburgh, PA
3. Chicago-Naperville-Elgin, IL-IN-WI
4. Riverside-San Bernardino-Ontario, CA and
5. Miami-Fort Lauderdale-West Palm Beach, FL
In these metro areas, the median listing price as of Jan 2021 was 7.7% lower than the national average of $346,000 and the median rent was 0.7% higher than the top 50 average.In January 2021, the median monthly cost to buy a home in the 50 largest metro areas was $1,988, compared to the median monthly rent of $1,727.
Note that for most research covering renting vs buying costs, mortgage rates are usually based on 30 year fixed rate mortgages and 20% down payments. You will pay more in monthly mortgage if you put down less than a 20% down payment or opt for a 15 year fixed rate mortgage.
Also, mortgage rates in January were a bit lower than they are now. Conversely, in many cities, rent prices have appreciated rapidly from March 2021 to July 2021.
But based on the report by Realtor.com, the top 5 places where renting favors buying include:
1. San Jose-Sunnyvale-Santa Clara, CA
2. Austin-Round Rock, TX
3. Sacramento-Roseville-Arden Arcade, CA
4. Seattle-Tacoma-Bellevue, WA
5. San Francisco-Oakland-Hayward, CACompared to the January 2021 national listing price of $346,000, the median listing prices in these metros were 105% higher. On average, renters in these metros saved 30% compared to home buyers. “It’s not surprising that buying makes more sense where real estate is affordable and the median sales price is lower than the national median price,” said Chief Economist of realtor.com Danielle Hale. We can conclude that affordability is the major reason why people opt for renting over buying.
A more recent survey by LendingTree showed that across the nation’s largest metros, renting is $606 cheaper than owning (if you’ve not paid off your mortgage). New York, San Francisco, and San Jose, Calif., are the metros with the greatest difference between renting and purchasing a home. For these three metros, renting is about $1,200 cheaper on average versus owning a home while paying off a mortgage. Florida’s Orlando and Tampa as well as Indianapolis have the narrowest gap between home buying and renting. Renters in these metros can save an average of $335 a month.
Should You Buy or Rent in 2021?
There is no right or wrong answer. If you believe that buying is better, then just buy a property. However, if you’re not sure and don’t want to make any decisions now, it’s better to rent.
Financially, there are both pros and cons to renting and buying, but you also need to consider your lifestyle needs. Do you want to be able to change things up easily, like painting and decorating? And do you prefer the sense of ownership that comes from knowing you have a place of your own? Then you should buy a house.
Do you travel a lot? And you don’t want to handle the stresses that come from home maintenance tasks such as repairing water damage? Then you should rent.
Here’s a summary of renting vs buying pros and cons:
When you rent, there is no need to worry about maintenance costs or upkeep. You always have a landlord who will take care of any repairs that may arise from time-to-time. Furthermore, with monthly payments and the freedom to move at all times without penalties, renting provides flexibility in your lifestyle choices should something change unexpectedly!
The tangible advantages of homeownership come from tax deductions for things like home-improvements which are used to lower taxable income (saving money on state/federal level), there’s more than just that! Owning your property means taking pride in fulfilling part of the American dream – a home that gives a sense of security and stability.
Now you know the costs of renting vs buying property in 2021. If you want to buy a home in 2021, you want to be financially prepared. Know that:
1. Your chances of repaying your mortgage are better if you have a stable job history, a steady income, and are able to save each month.
2. If you can’t afford a down payment, renting is a better option than buying. While renting, you can start saving up for a down payment.
3. You should be ready to compete for homes at higher price points. Competition among home sellers in a market with historically low supply has led to higher prices and faster sales.
And if you’re buying a home for vacation rental or as an investment property, you should be able to assess the profitability of your investment easily. You can do that with Mashvisor’s rental property calculator.
We all, to some extent, recognize the potential financial rewards we could attain from real estate investing. It goes without saying that there are many benefits of investing in real estate that outweigh the costs, and you as a real estate investor could be earning a steady flow of income to secure financial freedom for the long haul.
Whether you want to quit your mundane 9-5 job and become a full time real estate investor and/or save up for your retirement, you are on the right path to fulfill your financial goals sooner than you might think. It takes one rental property to establish your real estate business and get yourself a reliable source of constant rental income.
This year definitely looks promising for investors, and your real estate investments will earn you high returns indeed. The real estate market and the housing conditions are in tip top shape and you can rest assured you will be making money if you invest in the right locations. It is a simple equation: if the economy is growing, the housing market will flourish and there will be an abundance of real estate opportunities to tap into across the country.
Before you set forth with buying your first rental property, make sure you conduct real estate market analysis and consult a real estate professional. If you want to reap financial rewards from investing, you have to make wise and calculated real estate investment decisions in order to grow and diversify your portfolio. Do not depend on luck to win you money in real estate, there is no magic formula, it is all about studying your potential investment before closing any deal. Moreover, if you want to succeed in this industry, you have to know everything about real estate including the benefits you will gain in the short and long term. So let us get started: we will give you 7 major benefits of investing in real estate today.
This is a no brainer! The majority of people invest in real estate for the steady flow of cash they earn in the form of rental income. This passive income is a huge incentive to get you started and buy your first rental property. Depending on the location, you could be earning significant income to cover your expenses and make you extra money on the side. Urban cities or towns with colleges and universities tend to reap higher income because the demand is always high in those areas. If chosen wisely, you can secure a steady flow of income for a long time and even save for retirement. And you do not have to stop at investing in one property at a time; you can pick up the pace and invest in multiple rental properties all at once to increase your positive cash flow and diversify your real estate investment portfolio. You can manage by hiring a professional property management professional if the workload becomes too much. One tip to keep in mind: location, location, location is key to smart real estate investing. Don’t forget to choose a prime location to reap off the benefits of investing in real estate.
2. Long Term Financial Security
The benefits of investing in real estate provide investors with long term financial security. When you have a steady flow of cash in succession, the rewards of this investment bring on financial rewards for a long time. Owning a rental property can afford investors a sense of security because of the property’s appreciation in value over time. This means that your property’s value is most likely going to increase because land and buildings are appreciating assets. With that said, however, there is no guarantee the value will increase indefinitely. That is why it is always recommended to thoroughly research the location before closing the deal on the house of choice.
One of the benefits of investing in real estate is the tax exemptions investors get from owning a rental property. This is a major reason why many choose to invest in real estate. For example, rental income is not subject to self-employment tax. In addition, the government offers tax breaks for property depreciation, insurance, maintenance repairs, travel expenses, legal fees, and property taxes. Real estate investors are also entitled to lower tax rates for their long term investments. Icing on the cake!
4. Mortgage Payments Are Covered
The benefits of investing in real estate include your tenants as well. Simply put, the rental income you receive each month is more than enough to cover your expenses, including your mortgage payments. Essentially, your tenant is actually the one paying your mortgage. That is why it is important to keep your tenants happy and avoid or mitigate the negative repercussions of vacancy at all cost.
5. Real Estate Appreciation
If you already are in real estate investment or are just starting out, you do understand that real estate is not a short term investment plan. On the contrary, the benefits of investing in real estate include the appreciation of capital assets (aka land) over time. In other words, your property’s value will be worth way more 30 years from now, hence why investors are in it for the long run.
One of the benefits of investing in real estate is a hedge against inflation. With high inflation, your rental income and property value increase significantly. Real estate investors welcome inflation with open arms because as the cost of living goes up, so does their cash flow.
7. You Are Your Own Decision Maker
Forget about your 9-5 boring job, the best part about real estate is becoming your own boss. Just like any other business, you have the complete autonomy and control over your real estate investment strategies as well as your failures and successes. You call the shots on which property to invest in, the tenants who will live under your roof, how much rental income to charge per month, and who will manage and maintain the property as a whole. The benefits of investing in real estate make you your own decision maker.
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It was a strong year for luxury housing in San Diego County with 10 sales topping $10 million.
Oceanfront properties in Del Mar and La Jolla snagged the top sales, similar to the past few years where beachfront communities dominated the biggest purchases. In fact, three of the five top sales this year were on the same street.
There were no major records broken in 2019. The biggest sale in county history remains the 2007 sale of a 10,700-square-foot home on Ocean Front in Del Mar that went for $48.2 million, said the Greater San Diego Association of Realtors. The biggest sale in 2018 was $24 million for a property in La Jolla.
Just 4 percent of homes in San Diego County were listed for more than $4 million in mid-December, said Reports on Housing.
Steven Thomas, founder of Reports on Housing, said a sluggish stock market, and uncertainty over an economic downturn, made for a slow luxury market at the start of the year. But, he said things picked up again as many high-end buyers became more confident in the economy.
“There’s a lot of capital out there and it looks like this expansion is going to continue,” Thomas said of the biggest sales. “It’s at the point where people are just shrugging it off and pulling the trigger on this stuff.”
1. 2720 Ocean Front, Del Mar — $23.25 million
This 4,200 square foot home looks a bit like an East Coast house directly on the beach. It was built in 2009 and features seven bedrooms and nine bathrooms, as well as a detached guesthouse.
“This stunning 2009 classic Cape Cod flawlessly blends simple, elegant style with casual romantic ambiance,” read the listing from Ranch and Coast Real Estate.
2. 2936 Camino Del Mar, Del Mar — $22 million
This 7,625 square foot home was built in 1980 and is the largest Del Mar home to sell among the 10 biggest sales. It previously was owned by weight-loss entrepreneur Jenny Craig.
It has five bedrooms and seven bathrooms, 80 feet of ocean frontage, an interior courtyard with a pool and hot tub, an indoor-outdoor kitchen and two guest suites. There is room for 18 parking places.
Listing agent Zach Weinger of Willis Allen Real Estate said the property was unique because it was bigger than most homes in the area but it also had a private courtyard and kitchen area.
“It was probably as private as you could get on the beach,” he said.
The property was first listed for sale in March for $27.9 million and later sold for $5.9 million less. Property records say it was sold to a South Dakota limited liability company called Ocean Investments.
3. Razor House (9826 La Jolla Farms Road), La Jolla — $20.8 million
Architect Wallace E. Cunningham designed the structure, which hugs the side of a cliff and offers dramatic views. Other features include a subterranean garage, swimming pool and outdoor kitchen.
It is one of the biggest luxury homes on this list at 11,545 square feet. Keys has plenty of room for visitors with six bedrooms and eight bathrooms.
4. 1802 Ocean Front, Del Mar— $16 million
This 3,500-square-foot home was built in 2004 and took 54 days to sell. It is one of the smaller homes in this year’s biggest sales but still has four bedrooms and four bathrooms.
The property has a storied history, for a time being one of the biggest sales in San Diego County history when it sold for $18 million in 2016. It later went back on sale for $17.9 million in January, later selling for a steep discount.
The home is directly on the beach in Del Mar and features a gourmet kitchen, a balcony overlooking the ocean, four bedrooms, a theater room, outdoor shower and a spa. The home was built in 2004.
Property records show the property was purchased by 51-year-old Jennifer A. Moores, likely the daughter of former Padres owner John Moores. The seller was a limited liability company called Coco California.
5. 2502 Ocean Front, Del Mar — $15.4 million
This is the smallest home on the list at 2,519 square feet, and the oldest, built in 1968.
The home is directly on the beach and has six bedrooms, three bathrooms, a two-car garage, an oceanfront master bedroom with a fireplace. While the home might be on the smaller side for luxury homes, the lot is 4,000 square feet and gives more options for building out.